That is a 30x increase!

Of course, a large portion of this growth is coming from ‘option income ETFs’.

In fact, over the last few years, I’ve been building out an in-depth database on Option Income ETFs.

To better understand how OVL compares within the broader option-income ETF landscape, it is helpful to look at the types of funds currently available in the market.

The excerpt below is a sample from the Dividendology Database, which tracks a wide range of option-income ETFs and their characteristics.

Here’s what we believe is the unfortunate reality about the vast majority of these funds:

They are designed by nature to underperform their underlying holdings.

However, I actually recently added a fund to the database that, based on historical total return data since its inception in 2019, has outperformed the S&P 500. Of course, past performance does not guarantee future results.

And today, we’re taking a deep dive into it.

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Disclosure: This newsletter is sponsored by Liquid Strategies, LLC, the investment adviser to OVL. Dividendology has been compensated in cash for this content. Dividendology is not a client of Liquid Strategies and has a material conflict of interest in recommending OVL due to the compensation received. The opinions expressed are those of Dividendology and not of Liquid Strategies. Past performance is not indicative of future results.

🧩 Overlay Shares Large Cap Equity ETF (OVL)

The Overlay Shares Large Cap Equity ETF (the “Fund”) seeks total return.

OVL combines passive large-cap equity exposure with an actively managed, risk-controlled put-selling options overlay designed to generate additional income-

And the current distribution rate is approximately 10.29% (as of May 31, 2026), paid monthly, with an SEC yield of 0.29% as of 5/31/26.

The distribution rate is not a measure of total return or yield. Distributions may include return of capital, which should not be confused with investment income. The fund's distribution policy may change at any time.

Performance shown is total return since fund inception (September 2019) through 5/29/2026. The S&P 500 Total Return Index is shown for comparison purposes only and is an unmanaged index that cannot be invested in directly. OVL’s strategy, risk profile, and holdings differ materially from the S&P 500. Past performance does not guarantee future results. Standardized performance and current month-end returns are available at https://lsfunds.com/etfs/ovl

The fund currently has a five star Morningstar rating. (Overall rating based on risk-adjusted returns among 85 funds in the Derivative Income category as of 5/31/26. See morningstar.com for more details.

But what makes OVL especially interesting is not just the income.

It is the fact that, based on historical data since the fund’s inception in 2019, OVL has actually outperformed the S&P 500 on a total return basis.

Naturally, we should ask how the fund is structured to understand how this performance was achieved, and what factors may influence future results.

💼 Why the Reported Yield Can Look Misleading

If you currently look at the training twelve month distribution rate for OVL on softwares like Seeking Alpha, you’ll notice it shows approximately 6.31% as of 6/10/2026.

Why is that the case?

This is strictly because OVL recently changed its distribution policy.

I recently interviewed the fund’s Head of Advisor Solutions, Eric McArdle, and he stated this:

The team has historically focused on total return as we can see from their website, but recently updated the distribution policy by moving to monthly payments and distributing a greater portion of the fund’s option premium and realized gains, rather than retaining those amounts within the fund. - Eric McArdle

Distribution amounts and frequency may change at any time at the adviser's discretion.

Since the distribution policy update, the fund has seen 10 consecutive weeks of net inflows, meaning investor purchases of fund shares exceeded investor withdrawals during each week.

🔍 How OVL Is Different

Most option-income ETFs generate cash flow by selling covered calls.

The basic idea is relatively simple:

The fund owns stocks and sells call options against those stocks or an index.

In exchange, the fund collects option premium.

The problem is that selling covered calls (options sold against stocks already owned by the fund) usually caps upside.

If the market rises sharply, the fund may not fully participate because it sold away part of that upside.

This is the main reason many covered call ETFs underperform their underlying index over long periods of time.

OVL uses a different approach.

Instead of relying on covered calls, OVL starts with passive exposure to the U.S. large-cap equity market, typically through holdings that may include broad-market ETFs through holdings that may include broad-market ETFs such as Vanguard's S&P 500 ETF (VOO), which represented 100.19% of OVL's portfolio as of June 18, 2026.

So investors still get broad market equity exposure.

Then, on top of that equity exposure, the fund runs a short-term laddered put spread strategy on the S&P 500, using multiple put spread positions that expire at different times and are regularly replaced as they mature.

In a simplified example, if the market is trading at 100, the fund may sell a put option slightly below that level and buy another put option further below as a hedge.

The premium collected from selling the higher-strike put is greater than the cost of buying the lower-strike put.

That creates a net premium.

The fund then continuously recycles these positions every couple of weeks.

This type of strategy can generate income when the market is up, flat, or even modestly down.

The key difference is that OVL is selling puts instead of calls.

That means the fund is not directly capping its upside in the same way many covered call ETFs do.

However, the put spread strategy does carry downside risk. In sharp market declines, losses on the put spreads can partially offset equity gains. No options strategy eliminates market risk.

It helps explain how OVL has been able to generate meaningful income while still participating in equity market upside.

🛡️ Is the Distribution Sustainable?

For income investors, the most important question should not just be how high the yield is.

The real question is whether the income is sustainable-

Which is where many high-yield option-income ETFs struggle.

A fund can always create a high distribution rate in the short term.

But maintaining that distribution while also preserving NAV and delivering strong total returns is much harder.

According to Liquid Strategies, OVL’s goal is not to maximize income at the expense of everything else.

Instead, the fund seeks to provide a combination of high current income and strong total return.

In a prolonged down market, the team has said their goal would be to prioritize consistency and avoid cutting distributions every time the market pulls back.

However, there is no guarantee that distributions will remain at current levels.

Distribution amounts are determined by the adviser and may be adjusted based on market conditions and fund performance.

The idea is that as markets recover, the NAV can recover as well, and the option strategy has the potential to continue compounding over time.

This makes sense, of course, because the S&P 500 has historically climbed higher over the long term, though past performance is no indicative of future results.

Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. One cannot invest directly in an index.

🎙️ Interview with Eric McArdle

Members of Dividendology have access to the ETF Database, where I post interviews with fund managers, and you can see my interview with Eric McArdle from Liquid Strategies there.

If you’d like to get a more in-depth look at the fund, you can do so by watching this video:

OVL Video Breakdown

I’ll be doing another interview with Eric in the future, so if you have any questions you’d like for me to ask, reply to this email and let me know!

If you want to get access to the Dividendology Database, you can do so here:

Subscribe now

That’s all for now.

See you soon!

Dividendology

This newsletter is sponsored by Liquid Strategies, LLC, the investment adviser to OVL. Dividendology has been compensated in cash for this content. Dividendology is not a client of Liquid Strategies and has a material conflict of interest in recommending OVL due to the compensation received. The opinions expressed are those of Dividendology and not of Liquid Strategies. Past performance is not indicative of future results.

The distribution rate is not a measure of total return or yield. Distributions may include return of capital, which should not be confused with investment income. The fund’s distribution policy may change at any time

Must be preceded or accompanies by the prospectus: https://lsfunds.com/hubfs/Regulatory/Prospectus.pdf?hsLang=en

Risk Factors

Investing involves risk and the possible loss of principal.

The Fund invests in options that derive their performance from the performance of the S&P 500 Index. Selling (writing) and buying options are speculative activities and entail greater than ordinary investment risks. The Fund’s use of put options can lead to losses because of adverse movements in the price or value of the underlying asset, which may be magnified by certain features of the options. When selling a put option, the Fund will receive a premium; however, this premium may not be enough to offset a loss incurred by the Fund if the price of the underlying asset is below the strike price by an amount equal to or greater than the premium. Purchased put options may expire worthless and the Fund would lose the premium it paid for the option. The Fund may lose significantly more than the premiums it receives in highly volatile market conditions.

The Fund will invest in short term put options which are financial derivatives that give buyers the right, but not the obligation, to sell (put) an underlying asset at an agreed-upon price and date. The Fund’s use of options may reduce the Fund’s ability to profit from increases in the value of the underlying asset. The Fund could experience a loss or increased volatility if its derivatives do not perform as anticipated or are not correlated with the performance of their underlying asset or if the Fund is unable to purchase or liquidate a position.

The SEC Yield represents net investment income earned by the Fund over the 30-Day period expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-Day period.

The Morningstar RatingTM is a quantitative assessment of a fund’s past performance—both return and risk—as measured from one to five stars. It uses focused comparison groups to better measure fund manager skill. As always, the Morningstar RatingTM is intended for use as the first step in the fund evaluation process. A high rating alone is not a sufficient basis for investment decisions. The Morningstar RatingTM is based on a fund’s Morningstar Risk-Adjusted Return (‘MRAR’) measure. MRAR is motivated by ‘expected utility’ theory, whereby an investor ranks alternative portfolios using the mathematical expectation of a function (called the ‘utility’ function) of the end value of each portfolio. With this basis in expected utility theory, investors are firstly, more concerned about a possible poor outcome than an unexpectedly good outcome; and secondly, willing to give up some portion of their expected return in exchange for greater certainty of return. The rating accounts for all variations in a fund’s monthly performance, with more emphasis on downward variations. It rewards consistent performance and reduces the possibility of strong short-term performance masking the inherent risk of a fund. The Morningstar Overall Rating for the fund is based on the weighted average of its 3-year and 5-year Morningstar Ratings. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (As of 5/31/26)

Morningstar 3-Year Rating: ★★★★★ (85 funds) | Morningstar 5-Year Rating: ★★★★★ (67) | Morningstar Overall Rating: ★★★★★

Exchange traded funds and open-ended mutual funds are considered a single population for comparative purposes.

Past performance is no guarantee of future results and provide.

Members will get access to the full list every month, as well as all other Dividendology features.

This month, only 48 stocks made the list.

Let’s dive in.

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1. 📡 Comcast (CMCSA)

Wall St. Price Target: $33.14 | Upside: 35.25%

Comcast is now down over 58% in the last year-

And the valuation multiple is at historically low levels.

Comcast currently trades at a forward P/E of just 6.82x.

However, the market’s pessimism is not entirely unfounded.

Comcast’s most important business has historically been residential broadband.

Customers pay recurring monthly fees for internet access, creating a sticky, high-margin stream of cash flow.

Unfortunately, increased competition from fiber providers and fixed-wireless services has placed pressure on this business.

During the first quarter of 2026, domestic broadband revenue declined 5% year over year.

The core business is currently in decline, which explains the historically low valuation multiple.

Despite this, Comcast was one of the most frequently bought dividend stocks by super investors ($100M+ in AUM) in the most recent quarter.

While most super investors were buying quality dividend growers like MSFT, Visa, and AVGO-

Comcast was the 8th most bought stock, and by far the highest yielding stock purchased.

Why might this be the case when the core business is in decline?

While most investors primarily associate Comcast with cable and internet, the company also owns a valuable collection of media and entertainment assets.

These include NBC, Universal Pictures, DreamWorks, Illumination, Peacock and Universal theme parks.

Peacock’s paid subscribers increased 12% year over year to 46 million during the first quarter, while revenue increased 71% and surpassed $2 billion.

Theme park revenue as well as studios revenue both grew at over 20%.

While these are certainly smaller business segment’s than the core business, they are still helping offset some of the weakness within traditional broadband and cable television.

With the decline in prices, the company now yields over 5.5%, with historical dividend growth rates of above 7.5%.

At the same time, the free cash flow payout ratio remains below 25%.

While earnings growth is expected to be quite low over the next few years, the company has plenty of room to grow dividends in the future.

Growing the dividend at 4% moving forward would imply an intrinsic value of $29.59, implying almost 25% upside.

2. 🧮 Intuit (INTU)

Wall St. Price Target: $471.76 | Upside: 70.97%

Intuit is one of the most interesting companies on this month’s list.

Why?

Because they are one of the worst performing stocks in the S&P 500 in the last year, down over 63% due to the threat of AI disruption.

The company operates four major financial platforms:

1. TurboTax, the leading consumer tax preparation platform in the United States.

2. QuickBooks, which provides accounting, payroll and payment-processing software to small and midsized businesses.

3. Credit Karma, a personal finance platform with more than 100 million members that generates revenue through financial product referrals.

4. Mailchimp, which provides email marketing and customer relationship management tools for small businesses.

Intuit’s subscription-heavy business model has historically produced highly predictable revenue growth, high margins, and substantial free cash flow.

This is the exact type of capital light business model that has historically outperformed over the last decade.

These are businesses with high margins and generate high returns on invested capital.

However, we seen a drastic shift recently, as asset heavy companies have started to outperform.

In their recent earnings report, management actually raised its full-year outlook to approximately $21.34 billion in revenue and between $23.80 and $23.85 in non-GAAP earnings per share.

However, the concern of business disruption due to artificial intelligence is growing.

In theory, an advanced AI agent could gather information from financial documents, interpret the tax code, identify deductions and prepare a tax return without requiring the customer to navigate traditional tax software.

The same threat applies to QuickBooks.

AI agents could eventually categorize transactions, reconcile accounts, create invoices, manage payroll and produce financial statements.

If these tools become reliable enough, customers may question why they need several separate software subscriptions.

Recent weakness in TurboTax has added to these concerns.

Intuit expects total TurboTax Online units to decline approximately 2% during fiscal 2026, while its share of electronically filed tax returns is expected to decline by roughly one percentage point.

However, the counter argument is that Intuit may also be one of the companies best positioned to benefit from AI.

The company has decades of financial data, trusted relationships with consumers and businesses, and deep integrations with banks, tax authorities and payroll systems.

Intuit has also partnered with OpenAI and Anthropic and is embedding AI throughout TurboTax and QuickBooks.

The valuation has also compressed dramatically from its historical average.

While the market seems to be waiting to see if AI will disrupt Intuit, the average Wall Street price target now gives them over 70% upside after significant multiple compression.

3. 📊 S&P Global (SPGI)

Wall St. Price Target: $537.38 | Upside: 26.72%

S&P Global provides essential financial infrastructure through four core businesses:

1. S&P Global Ratings – One of the world’s largest credit-rating agencies, providing ratings and research on corporate, government, municipal, and structured debt. This segment generates roughly 31% of revenue.

2. S&P Dow Jones Indices – Home to the S&P 500, Dow Jones Industrial Average, and thousands of benchmarks used by ETFs, index funds, pension plans, and derivatives. This segment accounts for roughly 11% of revenue.

3. S&P Global Market Intelligence – Provides financial data, analytics, and workflow tools through platforms such as Capital IQ Pro. This is the company’s largest segment at roughly 33% of revenue.

4. S&P Global Energy – Delivers proprietary pricing, benchmarks, data, and analytics for global energy and commodity markets. This segment generates approximately 15% of revenue.

   

Through these businesses, S&P Global sits at the center of debt issuance, passive investing, commodity markets, and institutional decision-making worldwide.

What makes the business so powerful is its combination of deep entrenchment, recurring revenue, and exceptional cash generation.

Its ratings business benefits from regulatory recognition, decades of credibility, and a highly concentrated competitive landscape.

Its indices are equally difficult to disrupt.

The S&P 500 is not simply a dataset, it’s a globally accepted financial standard embedded into trillions of dollars of ETFs, mutual funds, retirement accounts, derivatives, and investment mandates.

As assets tied to these benchmarks grow, S&P Global collects additional licensing revenue with very little incremental cost.

This creates a beautiful business model.

Despite these advantages, shares have sold off as investors worry that artificial intelligence could disrupt financial data providers.

However, the market may be misunderstanding what S&P Global actually does.

AI can improve data processing and research workflows, but it cannot easily replace regulatory-recognized credit ratings, institutional trust, proprietary datasets, or globally accepted benchmarks.

S&P Global is also set to become a major beneficiary of AI.

The company acquired Kensho in 2018 and has continued investing in AI tools that analyze financial documents, automate workflows, and enhance Capital IQ Pro.

Rather than replacing S&P Global, AI could make its data and platforms more valuable.

S&P Global is also spinning off its Mobility division, which includes CARFAX and other automotive data businesses.

The separation should simplify the company and improve the remaining firm’s growth and margin profile.

Assuming 12% free cash flow growth, which is in line with estimates, SPGI fair value would be sitting at $525.93 according to our DCF model.

Now, let’s dive into the full list of dividend stocks with the most upside according to Wall Street.

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And created an investable universe using the Dividendology REIT Database.

Today, we’ll be exploring a potentially much more interesting, subcategory of REITs:

Specialized small cap REITs.

These REITs often have:

• Very little analyst coverage

• Misunderstood business models

• Less institutional ownership

This lack of coverage and institutional ownership often results in valuations getting disconnected from the REITs fundamentals, which also leads to high starting yields.

This is a major advantage for investors willing to do the deep research.

Today, we will be analyzing the Top 5 High Yield Small Cap REIT Opportunities-

As well as one we own in our High Yield Portfolio that yields over 10% with strong dividend coverage.

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🧮 REIT Sentiment

Most investors currently write off REITs.

But the reality is this is primarily due to recency bias.

REITs have drastically underperformed the market over the last 5 years-

But historically have provided superior returns to the S&P 500, a fact very few investors are aware of.

As mentioned on Wednesday, the rate environment REITs operate in plays a major role on future returns.

And the high rate environment over the last few years has not been optimal, and it appears it may stay that way for at least the next year.

But quality REITs continue to grow AFFO per share (the driver of intrinsic value for REITs) during high rate environments.

This naturally creates attractive valuations.

This fact, combined with the reality that specialized, small cap REITs already see their valuation disconnected from fundamentals can create incredible opportunities.

Let’s review these top 5 opportunities:

5. 🏬 CTO Realty Growth (CTO)

CTO is a small-cap retail REIT focused primarily on open-air shopping centers in high-growth Sunbelt markets.

The company owns retail properties that benefit from strong demographics, steady tenant demand, and embedded leasing upside.

This is not a struggling mall REIT.

CTO’s portfolio is centered around open-air retail, where demand has remained much healthier than many investors expected

In Q1, CTO reported strong results, including AFFO per share growing by 14% year over year and portfolio occupancy at 95.4%.

Here’s what makes CTO stand out:

• 7.3% dividend yield

• Roughly 9.2x forward P/AFFO

• Sunbelt-focused retail portfolio

• Growing signed-not-open rent pipeline

• Never reduced its dividend

The signed-not-open pipeline is especially important.

CTO finished Q1 with $6.2 million of signed-not-open rent, representing 5.5% of in-place cash ABR, meaning CTO has already signed leases with tenants, but those tenants have not opened yet, so the rent is not fully showing up in current revenue yet.

This gives CTO a built-in organic growth runway, without needing to rely entirely on acquisitions.

Despite yielding 7.3%, the company is currently only using 68.7% of their AFFO to payout dividends, creating strong dividend coverage.

To be clear, CTO still has risks.

Retail is tied to consumer spending, and their Net Debt to Adjusted Ebitda ratio is around 6.4x, a bit higher than we typically like to see.

But CTO appears to be executing well.

The company is growing AFFO per share at a strong rate, improving leasing spreads, recycling capital, and redeploying into higher-yielding opportunities.

At today’s valuation, investors are getting a 7.3%+ dividend yield while paying roughly 9.3x forward AFFO.

At the same time, they are trading at a much lower valuation than their peers, while growing substantially faster.

For a REIT producing double-digit AFFO growth with a Sunbelt retail portfolio, this is a compelling risk/reward setup.

4. 🌿 NewLake Capital Partners (NLCP)

NewLake Capital Partners is a high-yield REIT where fundamentals may be improving faster than the market is willing to price in.

The key catalyst is medical cannabis is moving to Schedule III status at the federal level.

Under Schedule I, cannabis operators were unable to deduct basic business expenses, resulting in effective tax rates of 60–80% and severely constrained profitability.

Schedule III treatment should allow normal deductions, which could lead to immediate improvements in free cash flow, balance sheets, and overall tenant credit quality.

Obviously that is important, as tenant risk is the primary reason NLCP trades at such a deep discount.

Even after the recent rally, NLCP still trades at:

• 7.87x P/AFFO

• Price to book value of just 0.82, meaning the market is valuing the company at 18% less than the value of its net assets

• 11.27% dividend yield

• Net cash position, with more cash than debt

However, the projected drop in AFFO this year puts their AFFO payout ratio right at 90%, which is at the top of management’s target range.

To be clear, NLCP has faced real challenges, including tenant restructurings and vacancies, which explains the depressed valuation.

In the most recent quarter, NLCP had three large cultivation facilities sitting vacant, which pressured AFFO per share.

However, rent collection on the rest of the portfolio remained at 100%, showing that the broader portfolio is still performing well despite the challenges.

Management has also said they are seeing an uptick in interest for the vacant properties, though increased conversations do not guarantee those properties will ultimately be leased.

The stock is cheap because the market is worried about tenant quality, tenant concentration, vacancies, and the specialized nature of cannabis real estate.

But at the same time, Schedule III will improve operator cash flow and credit profiles, the outlook for rent collection, re-leasing, and long-term cash flow stability improves materially.

Another potential catalyst is a major exchange listing.

Management has said roughly 50–55% of annualized base rent is currently derived from medical cannabis activities, which could become important for NYSE or Nasdaq listing eligibility as cannabis regulation evolves.

A major exchange listing would likely improve liquidity and expand the pool of investors willing to own the stock.

NLCP remains a riskier speculative REIT and should be sized appropriately.

Cannabis real estate will likely continue to deserve a higher risk premium than traditional net lease real estate.

If NLCP can simply maintain their dividend at these levels, it would imply over 35% upside from current prices.

3. 🏔️ Alpine Income Property Trust (PINE)

PINE is a small-cap net lease REIT that often gets overlooked because of its size.

It’s only a $350M market cap REIT, so it’s quite small-

But the underlying story is becoming one of the more interesting setups in the small-cap REIT space.

The company owns 125 properties across 31 states, with 99.5% occupancy and a 9.3-year weighted average lease term.

Roughly 50% of annualized base rent comes from investment-grade rated tenants, which is one of the stronger concentrations in the net lease space.

Here’s what makes PINE stand out:

• 6.1% dividend yield

• 57% estimated AFFO payout ratio

• 99.5% occupancy

• 50% of rent from investment-grade tenants

The dividend coverage is by far what is most impressive.

A 6%+ yield with a 57% AFFO payout ratio is rare in the REIT market, especially when you consider the rate this REIT is growing AFFO per share.

Q1 transactions came in at a 14.1% blended initial yield, including a downtown Aspen retail property with a 50-year lease and 1.25% annual escalators, plus a $32M Georgia retail development loan at a 13% rate.

This is where PINE’s small size becomes an advantage.

Smaller transactions that would barely matter for Realty Income or Agree Realty can actually move the needle for PINE.

Net debt to pro forma EBITDA is around 6.6x, which is higher than ideal, so this is another small cap REIT with more leverage.

Typically, we like to see net debt to EBITDA at no greater than 5.5x.

The commercial loan portfolio also adds complexity, with roughly a third of invested capital sitting in loans rather than owned properties.

Those loans yield 13–15%, including some paid-in-kind interest, which means a portion of income is non-cash until the borrower performs.

But the market may be over-discounting those risks.

They’re currently trading at a P/AFFO multiple of just 9.18x, while the projected CAGR for AFFO per share through 2030 is close to 6.2%.

Growing the dividend at just 3.5%, which should be quite easy with the low payout ratio and 6.2% AFFO per share growth, would imply around 20% upside from current prices.

2. 🏗️ AH Realty Trust (AHRT)

AH Realty Trust, formerly Armada Hoffler Properties, is one of the more controversial small-cap REITs in the market today.

The REIT owns a portfolio of mixed-use office and service-oriented retail properties, with a focus on walkable communities, grocery-anchored retail centers, and high-growth markets.

But the bigger story is the strategic transformation currently underway.

Historically, AHRT operated with a development-first model, generating income from construction contracts, development fees, lending, and one-off transactions.

That worked well in strong markets, but it also created lumpy earnings, more complexity, and more risk when rates spiked and credit tightened.

This eventually led to AFFO not covering the dividend, which forced the company to cut the payout.

Now, under CEO Shawn Tibbetts, AHRT is reshaping the business.

The company is selling its multifamily portfolio, exiting construction and lending operations, reducing leverage, and refocusing around its core retail and mixed-use office properties.

Here’s what makes AHRT stand out:

• 8.2% dividend yield

• Roughly 50% discount to estimated NAV

• Insiders own over 10% of the business

• ~96% occupancy

• Simpler retail and mixed-use office strategy

The key idea is that AHRT is becoming a cleaner REIT.

The two biggest historical problems were leverage and complexity.

By selling non-core assets and using proceeds to reduce debt, management is trying to strengthen the balance sheet.

And by exiting construction, lending, and multifamily, AHRT should become easier for investors to understand and value.

The management team recently stated:

“While 2026 represents a transition year for the company, I want to underscore that throughout this period, we continue to maintain full dividend coverage from the cash flows generated by our operating properties, while also meaningfully reducing debt.”

Importantly, the underlying property portfolio is still performing reasonably well.

If management successfully simplifies the business, reduces leverage, and proves the dividend is sustainable, AHRT could eventually be re-rated to a much higher valuation multiple.

Finally, let’s review the number 1 specialized small-cap REIT.

This is a REIT we added to our High Yield Portfolio when it was yielding over 10%, with extremely strong dividend coverage, and we’re already up 11% on this position.

Let’s take an updated look at it:

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📊 Generating BIG Dividends With REITs!

Entering into 2026, I made it clear that I was quite bullish on the REIT sector as a whole.

While we could point to a multitude of reasons as to why this was, the overall thesis was simple:

REITs were trading at one of their lowest valuations relative to equities in over 20 years.

When REITs have traded at a discount of -2.0x or greater to U.S. equities, the average forward returns have been impressive:

• 1 year later: +25.6% for REITs vs. +21.0% for U.S. equities

• 2 years later (annualized): +18.7% vs. +12.7%

• 3 years later (annualized): +13.9% vs. +12.8%

As we entered into 2026, they were trading at a 7.7x discount, which is one of the steepest discounts in history.

So far, the thesis has played out quite well, as the VNQ (the Vanguard real estate index) has outperformed the tech heavy S&P 500 year to date.

With that being said, the REIT sector is still trading at a substantial discount relative to equities and relative to historical REIT valuations.

This outperformance trend may not be over yet.

However, the market environment REITs are operating in has shifted dramatically, and not all REITs are set to benefit.

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📈 Shifting Market Environment

Every year, we invest well over $10,000 to get in depth research, reports, and data to provide for members of Dividendology.

Entering into 2026, Morningstar reported that two-thirds of REITs were trading at a matieral discount to their fair value estimates.

It’s important to note that historically, REIT performance has closely followed movements in the 10-year Treasury yield.

The chart below shows two important things.

• The red line is the market yield on the 10-year U.S. Treasury.

• The blue line is the inverse relative performance of U.S. REITs compared to the broader U.S. stock market.

When the blue line is moving lower, REITs are generally outperforming the market.

When the 10-year Treasury yield rises, REITs typically come under pressure. Higher rates can increase borrowing costs, make acquisitions less attractive, and create more competition from bonds and cash-like instruments.

But when the 10-year Treasury yield falls, the opposite tends to happen.

Lower rates can reduce the pressure on REIT balance sheets, make their dividend yields more attractive, and support higher valuations across the sector.

However, as I’ve pointed out many times this year, target rate probabilities for 2026 have shifted radically in the last few months.

We entered into the year with the market expecting three rate cuts-

But probabilities now show a 65% chance of a rate hike.

This shift creates a strong gravitational effect that pulls equities (particularly REITs) downward.

However, quality REITs continue to grow AFFO per share during these periods, meaning the company becomes stronger, while the valuation becomes more attractive.

Let’s create a simple REIT investable universe to take advantage.

📌 Dividendology REIT Database

The Dividendology Database is available for members of Dividendology.

But today, I’m sharing a portion of it with everyone.

There are currently 33 REITs being tracked in the REIT Database.

Let’s see if we can use our investable universe screen to narrow this down.

We want to look for REITs that are fundamentally strong, so to start, we look for AFFO per share growth.

🗂️ 1. Growing AFFO Per Share

When we want to see if a stock is growing intrinsic value, we see if they are growing free cash flow.

When we want to see if a BDC is growing intrinsic value, we see if they are growing tangible book value per share.

And if we want to see if a REIT is growing intrinsic value?

We see if they are growing adjusted funds from operations per share.

AFFO per share is the ultimate metric for REITs.

Let’s filter out all REITs that do not have positive AFFO per share growth over the past 7 years AND filter out any REIT not projected to grow AFFO per share at least 2.5% annually moving forward.

All of a sudden, we went from 33 REITs down to 18.

💸 2. Growing Dividends

The majority of people investing in REITs are buying them for their high yields.

So naturally, we need to make sure those dividends are sustainable.

Let’s filter out all REITs that have a forward AFFO payout ratio of above 85% AND a yield of at least 3%.

Now, we are left with just 9 REITs!

📑 3. Balance Sheet Health

Finally, we must assess the health of the REITs balance sheet.

In reality, this would require analyzing things like:

• Total debt vs. market cap

• Secured vs. unsecured debt

• Fixed-rate vs. variable-rate mix

• Weighted average interest rate

• Debt ladder

• Leverage ratios

These are things I discuss in my 46 minute video on how to analyze REITs.

But since we’re simply running screens, we will use our credit ratings.

We can see that all the REITs we’ve filtered down to already have an investment grade credit rating.

💥 4. Valuation

Finally, we must assess the valuation.

Valuations for REITs have been so compressed, that every single REIT in our investable universe is trading below its 5 year average P/AFFO multiple!

The average discount is 19.9%.

Obviously there is more to assess when it comes to valuations, and the rate at which they can grow AFFO per share heavily impacts the multiple that REITs deserve to trade at.

But with that being said…

It’s clear valuations are vastly more attractive now than they have historically been.

If we look at just a few of the more popular REITs on the list, we can see despite the fact the REIT market has climbed 11.5% year to date, their valuation multiple is still at historic lows.

🔑 Our Universe

With the help of the Dividendology Database, we were able to quickly spot where some of the best potential opportunities in the REIT market are by creating an investable universe.

The trends are easy to spot for most people.

Taking advantage of them is not always quite as easy.

Creating an investable universe removes roughly 80% of the work required.

As we continue to build out our Dividend Growth and High Yield Portfolios, we will filter out the weeds and look for quality.

If you want to be a part of the process of building these portfolios and also get access to everything mentioned below, you can join here:

Subscribe now

Here’s everything you’ll get as a Dividendology member 👇

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Tickerdata 🚀 (TICKERDATA SUMMER SALE (CODE: 'HEAT' FOR 30% OFF)

Interactive Brokers 💰 (My favorite place to buy and sell stocks all around the world!)

Seeking Alpha 🔥 (Now currently running their Summer sale ($30 off! + 7 day free trial)

The Dividend Report 📊 (Free Newsletter for Straightforward Dividend Stock News)

Disclaimer: As a reader of Dividendology, you agree to our disclaimer. You can read the full disclaimer here.

In just 13 years, he turned $18 million into over $14 billion.

That’s a return of 29.3% per year.

One of his secrets?

Turning over the most rocks.

I did something rare at the beginning of this year.

I sent out a poll to the 90,000 people who subscribe to this newsletter asking these three simple questions:

1. What are your top Dividend Growth stocks for 2026?

2. What are your top High Yield stocks for 2026?

3. What are your top funds/ETFs for 2026?

I heard back from many of you-

And in total, the Dividendology community submitted over 400 unique stocks and funds!

As we approach the midpoint of 2026, let’s review how the community picks have performed.

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💎 The Top 5 Dividend Growth Stocks

Dividend growth stocks are the best friend of the long-term investor.

Why?

Because historically, they’ve provided outperformance while having less volatility-

All while eliminating sequence risk by paying you a growing stream of dividend income.

Let’s review what the top 5 dividend growth stock picks were from the Dividendology community at the beginning of 2026:

1. Microsoft (MSFT)

2. ASML (ASML)

3. Broadcom (AVGO)

4. UnitedHealth Group (UNH)

5. Mastercard (MA)

Here’s a closer look at each one:

The picks from the Dividendology community certainly had the characteristics of high quality dividend growers.

These companies are growing earnings & dividends at a high rate, while generating exceptional return on invested capital.

What’s even more impressive?

The fact that these companies on average have outperformed the S&P 500 so far year to date.

• Dividendology Community Top 5 DG Picks: +15.66%

• S&P 500: 11.02%

This is a great example of how just a few great investments can drive meaningful outperformance.

🍬 Wisdom of Crowds

Our community stock picks outperforming the S&P 500 is a great example of ‘The Wisdom of Crowds’.

What do I mean by this?

A classic example of the wisdom of crowds is guessing the number of jelly beans in a jar.

Individually, most people’s guesses are wrong.

Some guesses come in way too high, others way too low.

But when you average all the guesses together, the crowd’s average often ends up surprisingly close to the true number.

As the Dividendology brand has grown into one of the largest dividend growth and high yield investing communities, we will continue to leverage our community size to take advantage of the wisdom of crowds.

💰 The Top 5 High Yield Stocks

One of the goals of Dividendology over the last year has been to prove that high yield doesn’t automatically mean high risk.

So far, that goal has gone incredibly well.

We launched our real money High yield Portfolio that currently yields 9.3% and has outperformed the market on a time weighted basis.

Not only is this portfolio outperforming, but it:

• Has had lower volatility (standard deviation)

• Has had a lower maximum drawdown

• Has had a stronger Sharpe Ratio

The Sharpe Ratio is an important one.

The Sharpe Ratio is a way of measuring how much return you’re getting for every unit of risk you take.

Basically, we took on less risk than the S&P 500, while still experiencing better returns.

An amazing start.

How have our communities top 5 high yield picks turned out so far in 2026?

Let’s review what the top picks were, as well as what their yield was at the start of the year:

The average dividend yield of these picks at the beginning of the year was close to 7%.

It’s difficult to compare metrics for these High Yield stocks, as we have 4 different asset classes on this list:

1. Traditional stocks

2. REITs

3. BDCs

4. MLPs

The reality of the market is that you often have to turn to alternative asset classes to find high yield opportunities-

And the way you analyze each of these different asset classes is radically different from traditional stocks.

So how has the communities picks turned out so far?

The average YTD total return of these 5 high-yield picks is currently 6.97%.

A very nice return for a group of high yield stocks.

Main Street Capital (MAIN) is bringing this average down considerably.

Without MAIN, these picks would’ve outperformed.

The BDC market as a whole has seen a considerable drawdown over the last year, with the VanEck BDC Income ETF (BIZD) down over 20%.

This has been primarily due to two reasons that I’ve been warning readers of over the last year:

1. Declining rates leading to lower net investment income

2. Overexposure to software companies in their portfolio

The BDC market has already changed dramatically over the last few months, as I pointed out just a few weeks ago.

Our High Yield Portfolio has certainly benefited from selecting some great high yielding companies, but we’ve also benefited from avoiding the BDC market.

As the market environment changes, we will continue to take a closer look into the BDC market to see if any opportunities arise.

🪨 Turning Over The Most Rocks

“The person that turns over the most rocks wins the game” - Peter Lynch

With the Dividendology community submitting over 400 unique stocks and funds, there are plenty of rocks for us to continue turning over.

That’s the edge of our community.

If you want even more out of the community and access to all the features mentioned below, you can join here:

Subscribe now

See you soon!

Dividendology

Check out these resources:

Tickerdata 🚀 (TICKERDATA SUMMER SALE (CODE: 'HEAT' FOR 30% OFF)

Interactive Brokers 💰 (My favorite place to buy and sell stocks all around the world!)

Seeking Alpha 🔥 (Research stocks $30 off! + 7 day free trial)

HYSA 📊 (Get Access to the Best High Yield Savings Accounts!)

Disclaimer: As a reader of Dividendology, you agree to our disclaimer. You can read the full disclaimer here.

This is the end result of 100’s of hours of research every month.

It’s time to dive in.

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1. 🌿 NewLake Capital Partners (NLCP)

NewLake Capital Partners is one of the most interesting high-yield REITs on the market right now, yielding over 11%.

NLCP is a cannabis-focused REIT, which means its properties are highly specialized and its tenant base is much more limited than a traditional net lease REIT. If a tenant runs into financial trouble, re-leasing a cannabis cultivation facility is not nearly as simple as replacing a tenant in a retail or industrial property.

However, the key catalyst is cannabis moving toward Schedule III status at the federal level.

Under Schedule I, cannabis operators were unable to deduct normal business expenses due to 280E taxation, resulting in effective tax rates of 60–80% and severely constrained profitability.

Reclassification would allow normal deductions, which should lead to immediate improvements in free cash flow, balance sheets, and overall tenant credit quality.

Tenant risk is the primary reason NLCP trades at such a deep discount, so this would be a major catalyst.

In the most recent quarter, NLCP had three large cultivation facilities sitting vacant, which pressured AFFO per share.

However, rent collection on the rest of the portfolio remained at 100%, showing that the broader portfolio is still performing well despite the challenges.

Management has also said they are seeing an uptick in interest for the vacant properties, though increased conversations do not guarantee those properties will ultimately be leased.

This is the core risk/reward setup.

The stock is cheap because the market is worried about tenant quality, tenant concentration, vacancies, and the specialized nature of cannabis real estate.

But if rescheduling improves operator cash flow and credit profiles, the entire risk profile of the business could improve materially.

This could lead to stronger tenants, easier re-leasing, better rent collection, and potentially improved access to capital for the broader cannabis industry.

Another potential catalyst is a major exchange listing.

Management has said roughly 50–55% of annualized base rent is currently derived from medical cannabis activities, which could become important for NYSE or Nasdaq listing eligibility as cannabis regulation evolves.

A major exchange listing would likely improve liquidity and could expand the pool of investors willing to own the stock.

Even after the recent rally, NLCP still trades at just 7.98x P/AFFO.

They also trade with:

• An 11.32% dividend yield

• An AFFO payout ratio of roughly 82%, near the low end of management’s 80–90% target range

• A net cash position, with more cash than debt

Even though AFFO per share is projected to drop slightly over the next year, it should still well cover the dividend.

Unlike most REITs, NLCP carries virtually no debt.

That gives the company far more flexibility than the average high-yield REIT, especially in a higher-rate environment.

To be clear, NLCP remains risky.

Rescheduling is not a magic fix.

Even if cannabis moves to Schedule III, the industry will likely remain volatile, and cannabis real estate will probably continue to deserve a higher risk premium than traditional REIT sectors.

NLCP already owns long-term leases with annual rent escalators. If the industry backdrop improves, the market may be forced to re-rate the stock closer to a more normalized valuation.

If NLCP can simply maintain their dividend at these levels, it would imply over 35% upside from current prices.

2. 🌲 Rayonier (RYN)

Rayonier is one of the more unique dividend stocks on the list because it gives investors exposure to a very different type of asset:

Timberland.

The company owns more than 4 million acres of land across the United States, giving shareholders exposure to hard assets, timber, real estate development, solar optionality, and other higher-and-better-use opportunities.

But in the last 5 years, this REIT is down 42%.

The market appears to be valuing the company more like a cyclical lumber business than a scarce land platform.

That disconnect likely stems from near-term weakness in housing, pressure on lumber prices, and the company’s increased exposure to wood products following the PotlatchDeltic merger.

Lumber manufacturing is a much more cyclical, lower-margin business than simply owning timberland.

Sawmills have higher fixed costs, less pricing power, and more exposure to swings in lumber prices. This is one of the key risks investors need to monitor going forward.

But the core timberland business is structurally different from most commodity businesses.

Unlike crops that must be harvested within a short window, trees can be left in the ground when pricing is weak.

In many cases, waiting can actually increase value, because trees continue to grow in volume and can move into higher-value product categories over time.

That gives timberland owners a level of flexibility that many commodity producers do not have.

The bigger opportunity, however, is Rayonier’s land optionality.

Rayonier owns land that can be monetized through higher-and-better-use projects, including master-planned communities, rural land sales, solar projects, conservation, carbon capture, recreation leases, and other land-based solutions.

The real estate segment is especially important because it can generate far higher margins than timber operations. Projects like Wildlight in Florida, Heartwood near Savannah, and Chenal Valley in Arkansas show how Rayonier can turn ordinary timberland into much more valuable development land over time.

Valuation is where the thesis gets interesting.

Rayonier currently trades at a rare discount to Weyerhaeuser, its closest publicly traded peer.

A sum-of-the-parts approach also suggests the market may be giving very little credit to Rayonier’s underlying land value and HBU opportunities.

When you break the company apart, the value is not just in the current timber cash flow.

There is value in the Southern timberland, Northwest timberland, development land around projects like Wildlight, potential solar acreage, and the wood products business.

Even using conservative assumptions, the estimated net asset value appears meaningfully higher than where the stock trades today.

That means investors may be getting the core timberland business at a discount while paying very little for the upside from solar, real estate development, carbon capture, and other land-based opportunities.

The dividend is another part of the appeal.

Rayonier’s base dividend yield is above 5%, and management has also discussed a special dividend following asset sales.

The company has also repurchased stock and could continue buying back shares if the public market discount to private market value persists.

To be clear, Rayonier is not a perfect dividend growth stock.

Its dividend has been uneven, the lumber market is cyclical, housing remains under pressure, and the PotlatchDeltic merger adds more exposure to manufacturing.

But for investors looking for real asset exposure, timberland, land optionality, and a stock trading at a meaningful discount to estimated private market value, Rayonier looks like an interesting long-term opportunity.

3. 💳 Mastercard (MA)

Mastercard is a great example of a capital-light compounding machine.

However, over the last year, Mastercard has significantly underperformed the S&P 500.

The stock has fallen double digits while the broader market has moved much higher.

That type of underperformance is unusual for a company that has historically been one of the best compounders in the market.

But the underlying business itself has continued to perform well.

Over the last five years, Mastercard’s earnings per share have grown by roughly 150–160%, while the stock price has only increased by a fraction of that.

When earnings grow much faster than the share price, the valuation naturally compresses.

Mastercard is now trading near its lowest valuation multiple in the last five years, despite still being expected to grow earnings at a strong double-digit rate.

The reason Mastercard deserves a premium valuation is because of the quality of its business model.

Mastercard is not a lender.

It does not take credit risk like a bank.

Instead, it operates one of the largest payment networks in the world and earns fees from transaction processing, cross-border volume, assessments, data services, fraud tools, and other payment-related services.

This creates an incredibly capital-light business with very high margins.

From a dividend perspective, the company:

• Yields 0.70%

• 10 YR Dividend CAGR of 15.68%

• FCF Payout Ratio of 16.30%

Let’s address a few of the concerns.

The market primarily has three concerns at it relates to Mastercard:

1. Regulatory risk

2. Stablecoins

3. Agentic commerce

The first concern is regulation, especially around credit card interest rates.

But again, Mastercard does not earn its money from interest income.

That risk would primarily fall on the banks issuing the credit cards, not the payment network itself.

Another concern is stablecoins.

The fear is that blockchain-based payments could bypass Visa and Mastercard.

This misses the real value Mastercard provides.

Mastercard is a global trust layer for payments, providing fraud detection, identity verification, compliance, tokenization, dispute resolution, settlement, and merchant acceptance.

Those services may become even more important in a stablecoin world.

The market seems to believe that Agentic commerce is another potential risk, but in reality, it could become a major opportunity.

If AI agents begin making purchases on behalf of consumers and businesses, the number of digital transactions could increase meaningfully.

More transactions should ultimately benefit companies that provide secure payment infrastructure.

Mastercard now trades at a free cash flow yield of 4.19%, meaningfully above their historical average, despite free cash flow projections remaining strong.

That makes Mastercard look especially interesting right now.

If we make conservative assumptions, and assume that:

• Revenue grows at 14% annually

• Operating margins slightly decline

• The P/E multiple sits around 25x, well below their historic average

You’d still be looking at compounded returns of 14.5% annually through 2028.

Now, let’s review the full list for June.

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Stealing From The Greats

Have you heard of Mohnish Pabrai?

His funds delivered compound returns of over 28% annually from 1999 to 2006.

His secret?

Being a shameless Buffett copycat.

“I’m a shameless copycat. Everything in my life is cloned…..I have no original ideas.” -Mohnish Pabrai

One of my favorite ways to find investment ideas?

Stealing from Super Investors.

Super investors are investors with over $100M in assets under management.

Every 3 months, they are required by law to reveal all of the moves they’ve been making in their portfolio.

So every quarter, I research and compile data on the 50 most frequently bought dividend stocks by Super Investors.

This not only reveals some interesting moves they’ve been making, but at times can also reveal some underlying trends where the big money is moving.

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Super Investor Database

Members of Dividendology get access to the Super Investors database.

While each quarter gives us insight into where capital is moving-

More importantly, it reveals the underlying trends of where the smart money has been moving over longer periods of time.

It allows us to see which dividend stocks are consistently attracting attention from Super Investors, and it can also help us identify the valuation ranges where these investors appear to find certain businesses attractive.

This is where the real insights come from.

Texas Instruments is a great example.

Texas Instruments was:

• The 7th most frequently bought stock in Q4 2025

• The 12th most frequently bought stock in Q2 2025

• The 6th most frequently bought stock in Q1 2025

However, it didn’t make the list in Q3.

But when you compare those buying patterns to the stock’s price action throughout 2025, the story becomes much more interesting.

While most of the financial media was focused on the Magnificent 7 and the AI-related stocks that Super Investors were buying, Texas Instruments was quietly being accumulated in the background.

And over the last year, that under-the-radar accumulation has been followed by a massive move higher.

TXN is now up 67% over the last year and 74% year to date.

This is exactly why tracking Super Investor activity can be so valuable.

The goal is not to blindly copy every move they make, it’s to identify patterns.

📊 Where the Money is Moving

Let’s review where capital is flowing right now.

The most widely bought sector by Super Investors this quarter was financials.

This is the second quarter in a row that this has been the case.

It’s certainly worth taking note that the financial sector has been the worst performing sector over the last year, currently down by over 6%, while the S&P 500 is up nearly 11%.

This difference in performance has led to a widening valuation gap between the market and the financial sector.

Financials have historically traded at a discount to the market when compared via P/E multiples-

But the reality is that it is typically much better to value most financial stocks (more specifically, bank stocks) with a price to book ratio, which essentially represents what would theoretically be left for shareholders if the company sold all its assets and paid off all its debts.

However, financial companies like Visa, Mastercard, and S&P Global are much better off with traditional valuation metrics.

Along with this, Super Investors frequently bought tech stocks, with a strong bias toward dividend growth stocks.

The average 5 year total dividend growth of the stocks in the top 50 was over 68%.

💰 Super Investors Top 10 Buys

These were the top 10 most bought dividend stocks by Super Investors in the most recent quarter:

1. MSFT — Microsoft 🖥️

2. META — Meta Platforms 📱

3. V — Visa 💳

4. DIS — The Walt Disney Company 🏰

5. SUNB — Sunbelt Rentals Holdings 🏗️

6. UNH — UnitedHealth Group 🏥

7. NVDA — Nvidia 🤖

8. CMCSA — Comcast 📺

9. GOOG — Alphabet 🔎

10. AVGO — Broadcom 📡

📝 The Full List

Below is the full list of the 50 Most Bought Dividend Stocks by Super Investors:

You can download the above spreadsheet for free here:

Top 50 Super Investor Buys

Let’s look at the key moves from just a few of the top Super Investors:

1. Bill Ackman

Bill Ackman got the most attention this 13F season for one single move-

Selling out of Google to buy Microsoft.

Ackman is a concentrated investor, with just 7 positions making up nearly the entirety of his portfolio.

Microsoft has become an incredibly interesting case study on valuation, as they are currently trading at their lowest P/E multiple in the last 5 years-

While simultaneously trading at their highest P/FCF multiple in the last 5 years.

Of course, this is the natural result of MSFT heavily increasing their capex spending to support their cloud and AI offerings.

So naturally, a drastic increase in capex spending will lower free cash flow.

However, it is important to remember that not all capex is created equal.

In general, there are two types of capital expenditures:

1. Maintenance capex is spending required simply to keep the business running at its current level. It preserves existing revenue but does not meaningfully increase future earnings power.

2. Growth capex, on the other hand, is discretionary investment aimed at expanding capacity, unlocking new revenue streams, and increasing long-term cash flow.

   

The vast majority of Microsoft’s elevated capex today falls firmly into the growth capex category.

Microsoft is building out global data center capacity, AI infrastructure, and long-lived cloud assets to meet demand that already exists.

How do we know that demand exists?

Microsoft now has one of the strongest forward revenue backlogs in all of big tech.

Commercial remaining performance obligations (RPOs, which represent signed customer contracts that have not yet been recognized as revenue) have surged to $392B (+51% YoY).

Bill Ackman has stated that he views MSFT as one of the few companies with the customer relationships, distribution, security, compliance, and infrastructure needed to monetize AI across the enterprise.

2. Berkshire Hathaway

This was the first quarter in history where Berkshire Hathaway was not led by Warren Buffett-

And the moves they made reflected this.

The new CEO, Greg Abel, reduced the total holdings of Berkshire Hathaway from 41 down to 29.

And in doing so, he ensured that this quarter would make over 12 quarters in a row of Berkshire Hathaway being a net seller of stocks.

For reference, this is the most amount of trading activity Berkshire has seen in years.

The biggest move they made was tripling their Google position, making it the 7th largest position in their portfolio.

Despite climbing around 120% in the last year, the average analyst price target still gives Google over 15% upside from current prices.

3. Valley Forge Capital Management

Valley Forge Capital Management is run by Dev Kantesaria, who focuses on investing in what he believes to be the highest quality businesses available at a fair valuation.

This strategy perfectly explains his largest purchase this quarter, increasing his ASML position by over 35%.

Capex spending from big tech stocks has not only met expectations over the last couple of years, most companies (like Meta and Microsoft) have even increased their projections for future capex spending.

I ran the numbers based on the latest available data and projections that the management teams had given us-

And capex as a percentage or revenue for AI Hyperscalers is now set to be around 93% in both 2026 and 2027.

Naturally, we should ask: Where is this capital flowing?

In the AI semiconductor value chain, all roads lead to ASML.

ASML is the sole manufacturer of extreme ultraviolet (EUV) lithography machines, which are critical for producing the world’s most advanced computer chips.

These are the machines used to etch the smallest, fastest, most advanced semiconductor chips in the world.

An ASML EUV machine has:

• 100,000+ parts

• 2 km of wiring

• Over 40 companies contributing subsystems

The company has one of the widest MOATs on the planet, and is virtually a monopoly.

All capex spending eventually flows back to ASML.

🗂️ Use The Database!

By using the Dividendology Super Investor Database, we were essentially able to find the valuation range for TXN that Super Investors found attractive.

As you go through the database, look for trends that may answer questions, like:

• What software stocks were previously being heavily added, but no longer are (potentially due to AI)?

• What tech stocks do Super Investors continue to add to in light of declining valuations?

• Which sectors are seeing capital rotation?

• Which stocks can we identify clear valuation ranges for?

The real advantage truly isn’t just analyzing the recent quarters buys-

It’s in identifying the trends.

If you want to get access to the Dividendology Database, as well as all the features mentioned below, you can do so here:

Subscribe now

Check out these resources:

Tickerdata 🚀 (My automated spreadsheets and instant stock data for Google Sheets!)

Interactive Brokers 💰 (My favorite place to buy and sell stocks all around the world!)

Seeking Alpha 🔥 (Research stocks $30 off! + 7 day free trial)

HYSA 📊 (Get Access to the Best High Yield Savings Accounts!)

Disclaimer: As a reader of Dividendology, you agree to our disclaimer. You can read the full disclaimer here.

Of course, there is a clear reason as to why this is.

Why is Cathie Wood perpetually bullish?

Perhaps so people invest in her innovation fund.

Why is Ray Dalio so bearish?

So people invest in his ‘All Weather Portfolio’ fund.

As the old Charlie Munger quote goes:

That’s the problem with most market commentary.

It is not designed to make you a better investor.

And because of that, I am usually very skeptical of dramatic market warnings.

But here is the uncomfortable truth:

The market is shifting dramatically right now, but it is happening slowly beneath the surface, in a way most investors do not fully recognize yet, and may not feel until the consequences become much more obvious.

Today, I will reveal the cracks as concisely as I can.

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🇯🇵 Japanese Bond Yields

Bond yields in Japan!?

Does it get any more boring and irrelevant?

Stay with me, because this is quietly becoming one of the most important macroeconomic shifts happening in the world right now.

For decades, Japan helped shape the global financial system in a way most investors never realized.

Japanese interest rates were essentially pinned near zero for years.

Money in Japan was extraordinarily cheap.

And because of that, enormous amounts of global capital borrowed in Japanese yen and flowed into higher-yielding assets around the world.

• US stocks

• US Treasuries

• Emerging markets

• Private equity

• Corporate bonds

• Real estate

Practically every major asset class benefited from this backdrop in some way.

But now, something is changing.

Japanese government bond yields are breaking out:

• The 10-year Japanese government bond yield is now near 27-year highs.

• The 30-year yield is near record highs.

• And the 40-year Japanese government bond yield has now moved above 4%.

That may not sound dramatic compared to US rates.

But for Japan, this is a seismic shift.

For years, global markets operated under the assumption that Japanese rates would stay permanently suppressed.

That assumption helped fuel one of the most important liquidity engines in modern financial history:

The Yen Carry Trade.

💴 The Yen Carry Trade

The yen carry trade sounds complicated.

In reality, the concept is very simple.

Investors borrow money in Japanese yen at extremely low interest rates-

Then use that borrowed capital to buy higher-yielding assets elsewhere.

As long as Japanese borrowing costs stay low and the yen remains weak or stable, the trade works beautifully.

It became one of the largest liquidity machines in the world.

And for years, it quietly helped support global asset prices.

But now, the setup is changing.

As Japanese bond yields rise, borrowing in yen becomes more expensive.

At the same time, higher Japanese yields create an incentive for Japanese capital to stay home instead of flowing abroad.

And if the yen strengthens, the trade becomes even more dangerous, because suddenly investors are not just dealing with higher borrowing costs-

They are also facing currency losses.

That can force large investors to unwind positions.

And when carry trades unwind, liquidity disappears fast.

This is one of the reasons why Japanese bond yields matter so much more than most investors realize.

This is not just a “Japan story”, it’s a global liquidity story.

For years, markets benefited from an enormous amount of cheap global capital.

Now one of the largest sources of that cheap capital is beginning to disappear.

📉 Equity Risk Premiums

One of the results of the ongoing shift in Japan is the change in equity risk premiums in the U.S.

At the exact same time global liquidity is becoming less supportive, US stocks remain historically expensive.

This is the most important chart you'll see today.

It shows the U.S. Equity Risk Premium (ERP), more specifically, the S&P 500 earnings yield minus the 10-year Treasury yield.

In simple terms, it answers one critical question:

How much extra return are investors being paid to own stocks instead of “risk-free” government bonds?

Right now, according to this chart, the answer is almost nothing or even negative.

To start, we must understand the earnings yield and 10-year Treasury yield.

• Earnings Yield = inverse of the P/E ratio (If the S&P 500 trades at a 20x P/E, the earnings yield is 5%)

• 10-year Treasury Yield = what you earn lending money to the U.S. government

The equity risk premium is the spread between the two.

Historically, stocks have offered a 3–5% premium over Treasuries.

That premium compensates investors for volatility, drawdowns, and uncertainty.

But we now have a scenario where the treasury yield is sitting close to a 5 year high.

And on top of this, the earnings yield of the S&P 500 is hitting its lowest level in over 10 years.

When this has happened in the past, forward returns over the next 5 years have been quite low, or even negative in some cases.

Of course, the counter argument to this is the fact that future earnings growth for the S&P 500 is projected to be higher-

And this is true… somewhat.

Earnings growth has picked up significantly, but a large portion of this growth comes from one-time distortions tied to “other income” from mega-cap companies like Amazon and Google, rather than purely from broad-based operating earnings growth across the index.

Earnings growth is still faster than previous years even if we exclude these items, but it also isn’t nearly as fast as some would have you to believe.

And in the midst of all of this-

Inflation is now hitting its highest levels in over three years.

According to BofA Global Research, once CPI first crosses above 4%, the S&P 500 has averaged:

• -3.5% over the next 3 months

• -6.6% over the next 6 months

And of course, as a result of this, the market now expects us to see a rate hike by the end of the year, which is a stark difference from when we were expecting multiple rate cuts as we entered into 2026.

Interest rates are to asset prices what gravity is to the apple. When there are low interest rates, there is a very low gravitational pull on asset prices. - Warren Buffett

🏦 Institutions See The Cracks

The interesting part is that institutional investors appear to be noticing this shift.

Short interest across the S&P 500 has moved meaningfully higher.

The median S&P 500 stock now has short interest equal to 3.0% of its market cap, the highest level since 2012.

That is twice as high as the levels seen during the 2020 pandemic crash.

For context, short interest in the median S&P 500 stock reached 3.8% at the peak of the 2008 Financial Crisis.

Meanwhile, the most heavily shorted 10% of S&P 500 stocks now have short interest equal to 8.0% of market cap, the highest level since 2018.

📈 So What?

My goal is never to ‘fear monger’-

And I certainly tend to be more bullish generally speaking.

But the reality is there are some abnormalities in the market right now.

So naturally we must ask, how do we position ourselves in light of the changing global economy?

Let’s look at an example.

From 1995, to today, Altria outperformed the S&P 500 by a wide margin.

• $10k into MO = $763K

• $10k into S&P 500 = $220k

And at first glance, it almost does not make sense.

How did this happen?

The answer is actually a perfect case study for the environment we may be entering, and it boils down to three things:

1. Valuation matters

2. Dividends matter

3. Reinvestment matters

Let’s look at each of them.

1. 💸 Starting Valuation Matters

The first reason is simple:

Altria started at a much cheaper valuation.

In 1995, Altria was already a highly profitable business, but investors hated the stock because of litigation and regulatory fears.

The business had real risks.

But those risks were also reflected in the price.

One of the biggest drivers of long-term returns is the valuation you pay at the start.

Altria did not need massive growth to produce great returns.

Investors were buying a cash-generating business at a cheap price.

Meanwhile, the S&P 500 was heading straight into the late-1990s tech bubble.

By 2000, many of the largest stocks in the index were trading at extreme valuations.

A lot of future returns had already been pulled forward.

Altria was the opposite, and it was producing meaningful cash flow relative to its valuation.

2. 🌱 Dividends Did The Heavy Lifting

The second reason is even more important:

Altria paid massive dividends that were reinvested.

This is the part most investors miss.

Altria’s stock price only went from about $24 to $74 over this period.

That alone is not what created the massive outperformance.

The real magic came from the dividends.

According to the data, the original investment bought about 416 shares of Altria in 1995.

But after decades of reinvested dividends, those 416 shares turned into more than 10,000 shares.

That is the power of dividend compounding.

• The dividends bought more shares at low valuations (meaning higher yield)

• Those shares paid more dividends

• Those dividends bought even more shares.

And the cycle continued for more than 30 years.

That is how a “boring” stock can quietly produce extraordinary returns.

And despite this incredible outperformance, the stock is still trading at a forward P/E multiple of just 13x!

3. 📉 Altria During The Lost Decade

This is perhaps the most important reason for us to understand.

The third reason Altria outperformed so dramatically is because it crushed the S&P 500 during the 2000s lost decade.

From 2000 to 2010, the S&P 500 basically went nowhere.

In fact, dividends were the only source of positive returns that decade.

Investors started the decade paying extreme valuations during the dot-com bubble.

Then the market got hit by:

• The dot-com crash

• 9/11

• Accounting scandals

• The housing bubble

• The Great Financial Crisis

It was an incredibly difficult decade for the broad market.

It was an incredibly difficult decade for the broad market.

However, Altria was producing and growing real cash flow.

It had a dividend yield of 9.8% in the year 2000, that was fully backed by cash flow!

And because the cash flow kept growing, the company kept growing their dividend as well.

Its business was not very economically sensitive, people kept buying cigarettes regardless of recessions. Yes, cigarette volumes declined over time, But Altria had enormous pricing power.

It could raise prices, protect margins, and continue returning capital to shareholders.

To put it simply, it was producing real returns.

⚠️ The Lesson

Let me be clear, I’m not ‘anti-AI’.

In fact, I’ve seen incredible gains from stocks benefiting from the AI boom:

• AVGO: +700%+

• CAT: +400%+

• ASML: +150%+

• TXN: +100%+

However, the ultimate hedge to the current market environment is asking yourself this question:

What assets can keep producing cash flow even if the market environment gets harder?

The dominant AI narrative assumes almost every company will benefit, but the underlying economics may point in the opposite direction.

AI lowers barriers to entry, increases competition, floods markets with cheap output, and compresses margins across many industries.

If every business can suddenly create more content, software, services, and products with fewer resources, pricing power becomes harder to maintain.

But real assets sit on the other side of this trend.

AI cannot create land, buildings, pipelines, power infrastructure, data centers, or scarce physical locations out of thin air.

As digital output becomes more abundant, the assets that cannot be copied may become more valuable.

That is why real assets and dividend growth should matter much more going forward:

They are built around scarcity, cash flow, and income that can survive even as many traditional businesses face more competition and weaker margins.

Most REITs have inflation-linked contracts with their tenants.

MLPs have long term contracts and fee based revenue, making future cash flow very predictable.

Stocks like Altria have recession proof cash flows.

In fact, this is exactly how we’ve outperformed the market in 2026 with our High Yield Portfolio that yields 9.3%!

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This was the first quarter ever where Berkshire Hathaway was not led by Warren Buffett.

Instead, the reins have been handed over to Greg Abel.

“I’d rather have Greg handling my money than any of the top investment advisors or any of the top CEOs of the United States.” - Warren Buffett

Greg Abel has been with Berkshire Hathaway since 2000.

Since then, Berkshire Hathaway has more than doubled the return of the S&P 500.

With that being said, some of the moves they made in the recent quarter were a bit shocking.

I spent hours reviewing it, and found 10 key takeaways for us to review. 👇

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1. 📈 Buys and Sells

In the most recent quarter, Berkshire added to 4 existing positions and opened 3 (technically 2) new ones.

They reduced the size of 6 positions, and sold out of 16 entirely.

This reduced Berkshire’s positions from around 41, down to 29.

2. 🔻 Berkshire is a Net Seller of Stocks

For over 3 years, Berkshire has been a net seller of stocks every quarter.

While the official amount isn’t public, here is my rough math for Q1 2026 based on average prices for the stocks they bought and sold:

• 🟢 Total Buys ≈ $17.6B

• 🔴 Total Sells ≈ $22.6B

That’s net outflows of around $5 billion.

For reference, this is the most amount of trading activity Berkshire has seen in years.

3. 💵 Berkshire’s MASSIVE Cash Pile

Berkshire’s cash position is now sitting right at $400 billion.

That’s enough to buy 478 different S&P 500 companies outright.

This puts them at a near 60% cash position.

Let's be honest.

There is only one reason you would sit on that much cash...

4. ❌ Exiting UnitedHealth Group

Buffett shocked investors in 2025 when he opened a position in UnitedHealth Group 3 quarters ago.

What’s equally as shocking, is the fact they exited the position last quarter.

UNH is up 26% in the last year.

However, keep in mind Berkshire sold this position in Q1 of this year (before the recent run up), meaning it’s difficult to know if Berkshire actually generated a positive return on this position.

It’s clear that Greg Abel did not agree with the UNH position.

Keep in mind that Todd Combs (who was one of three investment managers at Berkshire along with Greg Abel and Buffett) left Berkshire in December, and the UNH addition very well could have been his decision.

5. 📊 Buy and Hold Forever?

Buffett has stated many times before that Berkshire’s favorite holding period is forever.

There are certainly some stocks in the Berkshire portfolio that have been held for many years.

However, that is certainly not the case for the majority of stocks in their portfolio.

In fact, the top 20 holdings in their portfolio have only been held for a little over 7 years on average.

Many stocks that have recently been exited were held for less than 2 years.

In the last year, he added capital to stocks like Dominos, Chubb Limited, and Lamar Advertising.

What do the stocks all have in common?

They were in the midst of a major dip when Buffett bought.

Buying during major dips isn’t just a Buffett habit, the data actually backs it up.

The chart above shows recovery rates for thousands of stocks since 1985, and the pattern is clear:

• Stocks down 55-60% recover 74% of the time.

• Stocks down 65-70% recover 67% of the time.

• Stocks down 75-80% recover 62% of the time

This is why buying the dip (on high quality businesses) can actually be so effective.

Buying the right dips actually puts the long-term probabilities on your side.

6. 🛒 TRIPLING the Google Position

Buffett was asked about Google stock in an interview a few years ago, to which he stated-

“…The margins are incredible… I should’ve bought Google…”

In one of his final moves before retirement, Buffett added Google to his portfolio.

His original buy price was in the range of $180 - $255.

Berkshire recently tripled their position, adding capital somewhere between $273 - $345.

This addition has already paid off, with Google now trading at $384 a share, up 22.5% year to date.

The average analyst price target is $436, implying almost 14% upside still.

7. 🏛️ Berkshire Is Still Betting on Financials and Tech

Financials and Technology together make up 64.53% of Buffett’s portfolio, which is even higher than last quarter.

The capital added to Google was a major driver of the tech position increasing-

As well as the fact that Apple and Google have seen significant share price appreciation year to date.

8. 📉Outperformance is Dwindling

Buffett is the greatest of all time.

But the law of large numbers is kicking in.

Berkshire has outperformed in every decade, but that outperformance has started to grow smaller.

And in the 2020s, Berkshire has underperformed the S&P 500.

• S&P 500: 128.55%

• Berkshire Hathaway: 110.16%

9. 🎯 Berkshire’s Big Bets

There are currently 29 holdings in the Berkshire portfolio.

Berkshire’s top 10 holdings make up 90.72% of their portfolio.

The top 5 holdings make up 67.14% of the portfolio.

10. 💸 Berkshire’s Portfolio

Here is Berkshire Hathaway’s entire portfolio as of the most recent 13F filing.

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But I still see many people misunderstanding the true power behind dividend investing.

Hartford Funds recently conducted one of the most in-depth research studies on dividend stocks over the last 94 years.

What they found reveals the truth about dividend stocks.

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1. 💥 Power of Compounding Dividends

Since 1960, a staggering 85% of the S&P 500’s cumulative return has come from reinvested dividends.

$10,000 invested in the S&P 500 in 1960 without reinvesting dividends?

Turned into $982,072.

$10,000 invested in the S&P 500 in 1960 while reinvesting dividends?

Turned into $6,399,429.

2. 📈 Dividend Growth Outperforms

From 1973 to 2024, companies that grew or initiated dividends produced the highest total returns (10.2%/year).

Why would this be the case?

Think about what a stock growing its dividend often means:

• Cash flow can cover the dividend

• Management is confident earnings will continue to grow in the future

• It forces management to focus on the highest ROI projects

• Management is focused on long term objectives

Remember: Dividend growth and share price appreciation are both byproducts of free cash flow growth.

If free cash flow is growing, the dividend can keep growing.

3. 🧘 Dividend Growth Stocks Are Less Volatile

Not only have dividend stocks provided better historical returns-

They have also been less volatile. (Lower beta and lower standard deviation)

This is even more evident with dividend growth stocks.

So if we total returns are higher, while simultaneously experiencing less volatility-

That makes risk-adjusted returns extremely attractive.

4. 🏦 Institutional Investors Are Turning to Dividends

Since the Global Financial Crisis, there’s been a striking divergence between institutional and retail investors when it comes to income strategies.

Institutional investors have poured nearly $47 billion into equity-income funds since 2008.

Meanwhile, retail investors have pulled out nearly $123 billion from those same funds over that same time frame.

Are institutions ahead of the curve?

5. 📊 Dividends’ Contribution to Total Return

From 1940–2024, dividend’s contribution to the total return of the S&P 500 Index averaged 34%.

In the 1940s and 1970s, dividends accounted for over 60% of the total returns.

And in the 2000’s… The S&P 500 had negative returns.

Dividends were the only source of positive return that decade.

That’s exactly why living off dividends can help protect retirees from sequence of return risk, which is one of the biggest risks for retirees, and it’s the reason that I hate the 4% rule.

Any time the CAPE valuation of the S&P 500 has climbed above 20, the failure rate of the 4% rule has been over 25%.

So what is the CAPE valuation right now?

41.63.

Now is one of the riskiest times in history to retire off the 4% rule.

Dividends are more important than ever.

🏰 A Dividend Kingdom

The data is clear.

Dividend-paying stocks have some undeniable, data-backed advantages over non-dividend payers.

Buying stocks that have the ability to consistently grow dividends can turn your portfolio into a dividend kingdom.

This is exactly what we aim to do over the long term with our model Dividend Growth Portfolio on Dividendology.com-

And you can see 10 steps were taking to do exactly that here.

🌅 Want Access to More?

We are currently still in the beginning stages of building out our Dividend Growth and High Yield Portfolio on Dividendology.com.

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So far, the performance has been phenomenal.

While this performance is certainly exciting, as I pointed out last week and some subscribers have pointed out as well, we are yet to add a single BDC to our portfolio.

BDCs have been a disaster over the last 6 months-

However, there’s been a quiet market shift that is currently creating some high yield opportunities in the BDC market.

Let’s take advantage of this.

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📈 Our Outperformance

The High Yield Portfolio return has been approximately 9.8% in 2026 on a time-adjusted basis.

Meanwhile, the S&P 500 return has been approximately 9.4% over that same period.

That means our High Yield Portfolio is currently outperforming the S&P 500.

Simply amazing.

But the performance doesn’t tell the whole story.

Not only did this portfolio outperform by a wide margin, but it:

• Had lower volatility (standard deviation)

• Had a lower maximum drawdown

• Had a stronger Sharpe Ratio

The Sharpe Ratio is an important one.

The Sharpe Ratio is a way of measuring how much return you’re getting for every unit of risk you take.

A higher Sharpe Ratio essentially means that you’re being compensated more generously for the volatility your portfolio experiences.

Basically, we took on less risk than the S&P 500, while still experiencing better returns.

And that’s on top of the portfolio currently yielding a massive 9.30%, with the yield on cost GROWING due to a few of our picks growing their dividend payments.

While it’s still early, this portfolio has simply seen amazing performance.

We’ve undoubtedly selected some under the radar companies that have contributed to this-

But this is also in part due to avoiding the disaster that has been the BDC market, which is where many investors turn to when seeking out high yield.

📉 The BDC Market

I’m not ‘anti-BDC’ whatsoever-

In fact, BDCs even went through a period of time where they outperformed the S&P 500, despite a massive tech rally in the broader market.

It does press the question:

What type of environment were we operating in that allowed such amazing performance from this high yield asset class?

High rates.

After a decade of near-zero interest rates, BDCs suddenly found themselves in one of the most attractive environments they had seen in years.

Most BDCs lend the vast majority of their money to middle-market companies at floating rates.

So when interest rates rose, the income on many of these loans rose as well.

That meant BDCs were able to generate significantly more net investment income, which gave many of them the ability to raise dividends, pay supplemental dividends, and produce very strong total returns for shareholders.

It was an amazing time to be a BDC shareholder.

But as inflation rates lowered, the Fed began the process of cutting rates.

And at the beginning of 2026, the market was expecting three more rate cuts throughout the year.

All of a sudden, investors had two major reasons to be concerned about the BDC market:

1. Declining rates leading to lower net investment income

2. Overexposure to software companies in their portfolio

Both of these issues have posed serious threats to the BDC market, and as a result we’ve seen distributions fall for many BDCs, and share prices get decimated.

Just take a look at the VanEck BDC Income ETF for reference.

⚠️ Structural Issues?

As stated above, the weakness in the BDC market was primarily due to two issues:

1. Declining rates leading to lower net investment income

2. Overexposure to software companies in their portfolio

However, there is a serious difference in the two of these issues.

One is a structural issue, the other is much broader economic issue.

Rates were declining, and were projected to continue to decline, which of course was priced into these BDCs.

However, we’ve seen a dramatic shift in the economy over the last few months.

According to the Federal Reserve, a 10 percent increase in the price of oil raises the energy CPI by about 1.5 percent almost immediately.

Oil prices have risen dramatically recently due to the Iran conflict, and as a result, inflation just hit its highest level month over month in 3 years.

After years of trying to get inflation tamed in response to the money printing that ensued as a result of 2020, inflation is back.

And of course, the Fed only has one lever to pull when inflation is high.

Raise interest rates-

And that is now exactly what the market is expecting them to do.

We’ve gone from expecting three rate cuts in 2026, to an increasing possibility of a rate hike.

So what does this mean for BDCs?

It means the economic issue they’ve been facing is weakening.

While rising rates are certainly an issue for most equities, it’s good news for BDCs.

It’s difficult as investors to handle a headwind that impacts an entire cetor as a whole, which is a large reason we’ve elected to stay away from the BDC market over the last year with the Dividendology High Yield Portfolio.

But this still leaves us with the structural issue of overexposure to software companies-

Which is something we can address much better on an individual company basis.

For example, take a look at the software exposure of many of the BDCs in the Dividendology Database.

While this data may have changed slightly as it was pulled last quarter, many BDCs still sit with 20% or more exposure to software companies in their loan portfolio.

However, there are clearly multiple BDCs that are set to benefit from this new rate environment as well as low exposure to software companies.

Let’s look at one of them.

💼 Capital Southwest (CSWC)

Total Yield: 10.67% | Base Dividend Coverage: 101.7%

CSWC is one of the best internally managed BDCs in the market, and it has earned its premium valuation for a reason.

The portfolio is now approximately $2.1B, with the credit book 99% first-lien senior secured debt.

In other words, they are near the front of the line to get paid back (senior), the loan is backed by collateral (secured), such as assets of the company, they have the first claim on that collateral if the borrower gets into trouble (first lien).

A few key numbers stand out:

• $0.59/share in quarterly pre-tax NII vs. $0.58 regular dividend

• $2.39/share in LTM pre-tax NII vs. $2.32 regular dividends

• $1.07/share in undistributed taxable income

• Non-accruals at just 1.1% of fair value

• Average debt investment hold size of just 0.9%

They clearly have a history of paying and maintaining large dividends.

But the last point made above is potentially just as important.

CSWC’s portfolio is very granular, meaning no single position is likely to make or break the company.

Management also notes that 88% of debt investments are currently rated a “1” or “2,” which means the overwhelming majority of the credit book is still performing well.

The other thing I like is the low software exposure.

CSWC’s largest industry exposures are healthcare services, consumer services, media & marketing, consumer products, food/agriculture/beverage, transportation & logistics, and business services.

Software is not a top portfolio category.

This makes CSWC very different from some BDCs that have large exposure to private software companies, where investors are increasingly worried about AI disruption, valuation resets, and weaker exits.

Of course, the market has recognized this to some degree, which is why they trade at more a premium valuation relative to the other BDCs in the Dividendology Database.

After climbing almost 7% year to date, CSWC trades at roughly 1.44x price to tangible book value per share.

However, that premium is not crazy for a high-quality internally managed BDC, but it does mean investors are paying up for quality-

Especially as most BDCs are down double digits this year.

So CSWC checks almost every box from a credit quality perspective: strong dividend coverage, first-lien-heavy portfolio, low non-accruals, low software exposure, meaningful spillover income, and a long record of supplemental dividends.

The only real question is whether the premium valuation gives you enough margin of safety.

🧩 Accumulation Phase

With this shift towards a ‘higher rates for longer’ phase-

I think we are finally entering into an accumulation phase for BDCs.

However, I must warn you.

The BDC market is still a landmine right now.

It is just like the old game minesweeper.

If you go around randomly selecting BDCs, you are basically guaranteed to hit a mine.

In the coming weeks/months, we will be taking a closer look in the BDC market, to see if we can potentially find some high yield gems to add to the High Yield Portfolio.

As a reminder, be sure to take advantage of the BDC Database, which is available to members of Dividendology.

This is typically updated a couple of times a month, and I plan on adding new features to it such as software exposure to continue to enhance the experience.

I’m obsessed with providing as much value as possible, and will continue to aim to do exactly that.

If you want to get access to it, as well as all other features mentioned below, then you can join here:

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See you soon!

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🎯 Most Upside Dividend Stocks

Every month, I compile data on the dividend stocks with the most upside based on Wall Street analysts price targets.

Members will get access to the full list every month, as well as all other Dividendology features.

This month, only 47 stocks made the list.

Let’s dive in.

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1.🛒 Dollar General (DG)

Wall St. Price Target: $151.06 | Upside: 44.37%

Dollar General is one of the largest discount retailers in the United States, with over 20,893 stores nationwide as of fiscal year-end 2025.

The business model is incredibly simple:

Sell everyday essentials, at low price points, in small-format stores, in places larger retailers won’t go.

Roughly 80% of Dollar General’s stores are located in towns with populations of 20,000 or less, with their core customer base being lower to middle-income households, particularly in rural and small-town America.

This is a customer base that competitors like Walmart, Target, and Amazon have historically struggled to reach efficiently.

Dollar stores have been one of the most quietly powerful growth stories in U.S. retail.

Over the past decade, the total number of dollar stores in the U.S. has roughly doubled from 20,000 to over 40,000, and 88% of Americans now report having shopped at one.

Dollar General has gone from 8,194 stores in 2007 to 20,959 as of 2025, which is around a 156% increase in store count.

DG’s free cash flow over the last decade doesn’t look like a smooth compounder.

In fact, it’s been a bit of a roller coaster:

• ~$870M in 2015

• ~$1.45B in 2019

• ~$2.85B in 2020 (pandemic boost)

• $430M in 2022 when working capital reversed, shrink hit, and capex ramped.

This is exactly why management held the dividend flat through 2022–2023.

FCF has now recovered to ~$1.7B in FY24 and ~$2.4B in FY25.

Despite the volatility in free cash flow in recent years, the long-term story combined with the macro environment we are operating in makes DG quite interesting.

Take a few things into consideration:

1. Inflation just ramped up to its highest level in over 3 years

2. Consumer budgets are becoming increasingly stretched

3. Credit card delinquencies and consumer debt levels remain elevated

All of these macro factors are contributing to the widening of the ‘K-shaped’ economy.

And ironically enough, Dollar General is set to benefit from this.

Dollar General operates in one of the most resilient areas of retail, value-focused consumer spending.

And historically, periods of economic pressure have often strengthened the company’s positioning as consumers trade down and become more price conscious.

That’s part of why the market may be underestimating the business today.

At the same time, Dollar General still has a massive physical footprint advantage.

The company estimates that roughly 75% of the U.S. population lives within five miles of a Dollar General location, giving it one of the most accessible retail networks in the country.

And unlike many traditional retailers, Dollar General’s smaller-box model allows stores to operate profitably in lower-density rural markets where competitors often cannot justify expansion.

The stock currently yields around 2.28%, which is 40% above its historical average yield, while the payout ratio remains conservative compared to many mature retailers.

But perhaps what is most interesting, is if we look at their free cash flow from a valuation standpoint.

The 10 year average free cash flow yield sits at 4.52%, meaning every $100 you invest into the stock would generate around $4.52 in free cash flow in year one.

However, their current free cash flow yield now sits way above their 10 year average, at 13.49%!

With earnings and free cash flow projected to grow at mid to high single digits in the next couple of years, combined with the fact they have macro factors working in their favor, DG could be a hidden gem over the next few years.

And with Wall Street currently projecting over 44% upside from current levels, Dollar General may be one of the more interesting contrarian dividend growth opportunities in today’s market.

2. 💊 Merck & Co. (MRK)

Wall St. Price Target: $136.37 | Upside: 20.68%

Merck is one of the largest pharmaceutical companies in the world, and right now it is also one of the most controversial stocks in the entire dividend universe.

Most of the controversy comes down to one drug: Keytruda.

Keytruda is Merck’s blockbuster cancer immunotherapy and currently the best-selling prescription drug in the world.

In 2025, it generated over $30B in sales, representing nearly half of Merck’s total revenue, and its primary patents begin expiring in 2028.

As a result, take a look at what EPS growth projections look like starting in 2029…

That is the entire bear case in one sentence.

Wall Street has been pricing this in for two years, which is why MRK is currently still in a drawdown of 16% over the last 3 years-

But to be fair, it was once in a drawdown of over 44% in Summer of last year.

Of course, as a result of this sell off, the starting dividend yield is now around 3%, with a 5 year dividend CAGR of 4.93%.

But with the free cash flow payout ratio already at 66%, replacing the cash flows from Keytruda becomes incredibly important for the dividend to remain sustainable.

The reason Wall Street currently seems bullish is because Merck has been preparing for this patent cliff for years.

Management understands exactly how important Keytruda is to the business, and they have aggressively used the company’s massive cash flows to build what they hope becomes the next generation of growth drivers.

That includes:

• Expanding Keytruda into additional cancer indications before patent expiration

• Developing a subcutaneous version of Keytruda that could extend exclusivity beyond the current patent window

• Acquiring new assets and pipeline candidates

• Rapidly scaling newer growth platforms outside of oncology

One of the biggest areas investors are watching is Winrevair, Merck’s recently launched pulmonary arterial hypertension drug acquired through the Acceleron deal.

Many analysts believe Winrevair could eventually become a multi-billion-dollar blockbuster on its own, with some estimates projecting peak annual sales north of $5B.

The company also continues to see strong growth from drugs and segments like:

1. Gardasil

2. Animal Health

3. New oncology assets

4. Cardiovascular treatments

Wall Street is currently giving them a price target of $136, implying 20% upside.

However, I’m personally not convinced, especially from a risk adjusted basis.

Losing exclusivity on the best-selling drug in the world is a major event for any pharmaceutical company, and revenue growth will likely become much more challenging later this decade.

Future cash flows for pharmaceutical companies are incredibly hard to project, and while the pipeline is being expanded, I’m not quite sure it will be at a level where they can completely replace the cash flows from keytruda in just a few years.

Merck trades at a forward P/E of 18.19 according to TIKR, which is to high for my liking for a stock with declining EPS and unpredictable future cash flows.

3. 📊 Intercontinental Exchange (ICE)

Wall St. Price Target: $199.91 | Upside: 26.67%

If you’ve ever bought a stock listed on the New York Stock Exchange, traded a Brent crude futures contract, or taken out a mortgage in the U.S. in the last few years, there is a very strong chance Intercontinental Exchange touched that transaction.

ICE is one of those rare businesses that quietly owns the rails the rest of the financial system runs on.

The company operates three core segments:

• Exchanges (~54% of revenue):

  The New York Stock Exchange, ICE Brent (the global oil benchmark), natural gas markets, agricultural futures, and interest rate products. In full year 2025, this segment generated $5.4B in revenue with a 75% adjusted operating margin.

• Fixed Income & Data Services (~24% of revenue):

  Bond pricing, indices, reference data, analytics. A sticky, subscription-style business that did $2.4B in 2025 revenue with a 45% adjusted operating margin. This is one of the more attractive segments in my opinion.

• Mortgage Technology (~22% of revenue):

  Built through Ellie Mae (2020) and Black Knight for $11.9B in 2023. ICE now powers a meaningful percentage of U.S. mortgage origination and servicing software.

The key thing to understand about ICE is the moat.

Exchanges have extreme network effects: liquidity attracts liquidity.

Once a futures contract becomes the global benchmark for something like Brent crude, it is almost impossible to displace.

That dynamic creates one of the strongest competitive advantages in all of finance.

Because once market participants, institutions, and hedgers standardize around a benchmark, switching becomes incredibly difficult.

That is why ICE’s exchange business consistently produces extremely high margins and recurring cash flows.

Their gross profit margins have gone from 53.91% to 61.88% in just one decade.

And importantly, much of the business is not directly dependent on whether the stock market goes up or down.

In many cases, volatility itself can actually increase trading volumes across futures, commodities, energy, and fixed income markets.

That creates a very different dynamic than traditional asset managers or investment banks whose revenues are often more tied to rising markets.

And like I mentioned above, the data services portion of the business is becoming even more attractive because of its recurring subscription-style revenue model and high switching costs.

Companies with highly predictable cash flows almost always trade at a premium, assuming they are growing those cash flows at a healthy rate.

The growing, predictable cash flows make ICE a great dividend grower.

From a valuation perspective, ICE is trading well below its historical valuation multiples.

If we look at them from a sensitivity analysis perspective, even if we assume:

• The P/E multiple does not revert back to its historic average

• EPS growth comes in slightly below analyst estimates

We can still see compounded growth rates of above 12% by 2029, not including dividends.

This of course provides returns well above historic market averages.

Now, let’s dive into the full list of dividend stocks with the most upside according to Wall Street.

Read more

Since inception, SCHD has delivered annualized returns of nearly 13%, while also building one of the strongest dividend growth track records in the ETF market.

Today, the fund yields roughly 3.4%.

But do you know what truly makes SCHD special?

Dividend growth.

Since inception, SCHD’s dividend growth rate has averaged around 11% annually!

But eventually, as investors get closer to living off dividends, many begin to ask the same question:

How do you enhance SCHD’s yield without destroying the long-term compounding engine?

Let’s create a simple 3 fund portfolio to do exactly that.

⚠️ The Covered Call ETF Problem

Covered call ETFs have exploded in popularity over the last several years.

Total net assets for these high income funds grew from under $10B to over $140B in just the last 5 years!

At first glance, it’s easy to understand why.

Many of these funds offer:

• 10%+ yields

• Monthly income

• Massive distribution payouts

But there’s a major issue most investors completely overlook.

The distributions from most of these funds are often not sustainable.

Inside the Dividendology Covered Call ETF Database, I currently track around 70 different covered call ETFs.

Out of those 70 funds?

Only around 38% of covered call ETFs have successfully maintained long-term NAV growth.

And this matters far more than most investors realize.

Because over the long run:

Lower NAV eventually leads to lower distributions.

Even funds that have historically had periods where they performed very well can be structured in a way where that performance will certainly NOT last.

Take YieldMax’s MSTY for example.

This fund was considered (by some) to be the gold standard for covered call ETFs.

However, in the last year, the fund has:

• Fallen by 78%

• Seen distributions fall by around 80%+

This is the hidden danger with many covered call ETFs:

They can generate enormous yields…

…but often at the expense of long-term sustainability.

And if you’re looking to live off dividends, then obviously the yield of your portfolio is important-

But so is the sustainability of the income you generate.

If you truly want to understand covered call ETFs, there’s one metric that matters more than almost anything else.

🔍 Portfolio Options Coverage

Most covered call ETFs operate with nearly 100% overwrite strategies.

In simple terms:

They continuously sell options on nearly the entire portfolio.

That creates high income today, but it also caps upside participation almost entirely.

And over time, that increases the potential of slowly eroding long-term NAV growth.

Now to be fair, there are some exceptions.

Funds like NEOS Nasdaq-100 High Income ETF (QQQI) and NEOS S&P 500 High Income ETF (SPYI) have done a much better job than most competitors, although even they don’t always utilize a 100% portfolio options coverage strategy.

But if we’re building a “sleep well at night” enhanced yield portfolio around SCHD, I actually think there’s an even more interesting option emerging.

⚡ Yield Enhancement #1

GPIQ generates high monthly income by investing in Nasdaq-100 stocks and selling call options against the portfolio, and has a trailing twelve month yield of 9.59%.

But structurally, there’s one massive difference.

Unlike many competitors that maintain nearly 100% overwrite exposure at all times…

GPIQ uses a dynamic overwrite strategy.

According to the fund prospectus, portfolio options coverage generally ranges between 25% - 75%.

That flexibility matters enormously.

Why?

Because ideally, it allows portfolio managers to:

• adjust based on volatility

• adapt to market conditions

• participate more fully in upside rallies

• preserve more long-term NAV growth

And in my opinion, that’s exactly what investors should want from a covered call ETF.

So what’s the tradeoff?

The starting yield is slightly lower than some ultra-aggressive competitors.

But that lower starting yield actually improves long-term sustainability.

Currently, GPIQ yields slightly below 10% on a TTM basis.

But unlike many covered call ETFs, GPIQ has actually shown modest distribution growth since inception.

That’s an extremely important distinction.

And perhaps most importantly, GPIQ complements SCHD extremely well from a sector exposure standpoint.

SCHD has very little exposure to mega-cap technology and AI-driven companies, while GPIQ is heavily tech-focused, meaning there is surprisingly little overlap between the underlying holdings of the two ETFs.

🌍 Yield Enhancement #2

The second ETF that I believe fits extremely well into this type of portfolio is the Amplify CWP International Enhanced Dividend Income ETF (IDVO).

And in my opinion, this is one of the more overlooked income ETFs on the market today.

Unlike many covered call ETFs that focus heavily on U.S. mega-cap tech stocks, IDVO focuses internationally.

That immediately introduces another layer of diversification into the portfolio.

The fund holds high-quality international dividend-paying companies while implementing a covered call strategy to enhance income generation.

However, how they go about generating their 5.4% yield is incredibly important to understand.

The fund has portfolio options coverage of 30% - 60% at any given time, allowing for substantial NAV growth.

As a result, the NAV is up significantly in the last year and since inception.

And as a result of that, the growth in the distributions has been exceptional.

Keep in mind, IDVO seeks to provide gross annual income of approximately 3-4% from dividend income and 2-4% from option premium-

Making these distributions substantially more sustainable than traditional covered call ETFs.

⚖️ Why This Three-Fund Combination Works So Well

What I really like about this setup is how each ETF serves a completely different purpose.

1. SCHD - Acts as the long-term dividend growth engine

2. GPIQ -Enhances yield while maintaining more upside participation through active overwrite management and providing exposure to the tech sector

3. IDVO -Adds global diversification and another layer of enhanced sustainable income generation

The portfolio becomes much more balanced and sustainable than simply chasing the highest yielding covered call ETF possible.

Here’s what the allocation could look like:

With this structure, the portfolio’s overall starting yield jumps materially higher than SCHD alone, while still providing above average levels of dividend growth.

But importantly, you’re increasing your diversification as well.

Here’s what an initial $1M investment into this portfolio would look like:

Your purchasing power would still be increasing substantially, as your yield on cost closes in on 8% by year 5!

📈 Final Thoughts

The goal should never simply be maximizing yield.

The goal should be maximizing sustainable income growth over very long periods of time.

And in my opinion, this combination creates one of the more interesting “sleep well at night” dividend ETF portfolios available today.

And over the next decade, I think investors are going to learn that sustainability matters far more than simply chasing the highest yield on the screen.

As a reminder, members can access the Covered Call ETF database at anytime to see in depth metric on these funds like:

• Portfolio options coverage

• Option moneyness

• NAV changes

If you want to get access to it, as well as all other features mentioned below, then you can join here:

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See you soon!

Dividendology

High yield investing.

However, despite some high yield stocks often times carrying more risk, we’ve been able to build a High Yield Portfolio that:

• Yields 9.30%

• Has seen share price appreciation

• Has seen dividend growth

• Has a healthy payout ratio

It’s incredibly easy to simply select high yield funds to boost your starting yield.

It isn’t easy to achieve a high yield while also seeing the other three metrics improve at the same time.

Today, we will be diving into our High Yield Portfolio, reviewing and updating our thoughts on each of the positions.

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🧩 The Composition

How many stocks in the S&P 500 yield above 6%?

Just 10.

How many stocks in the S&P 500 yield above 7%?

Only 1.

And to be honest, very few of those stocks would we ever consider for our High Yield Portfolio.

So naturally, we have to turn outside of where most of the market looks to find high yield opportunities.

For our High Yield Portfolio, we primarily focus on five asset classes:

Part of the issue most investors have with high yield investing is the fact that the way we analyze each of these assets is radically different from the way we analyze more traditional equities.

As of right now, we have added six positions to the High Yield Portfolio.

Here is the current composition by asset class:

• Covered Call ETF: 1

• MLPs: 2

• REITs: 1

• BDCs: 0

• Preferred Shares: 2*

Business Development Companies are the only asset class we have yet to add to our portfolio.

This has proven to be a wise move, as the BDC market has been hammered over the last year, with many BDCs reducing dividend payouts as well.

I put out an article back in March explaining the dangers of the BDC market right now, which you can see here.

📈 The Results

So what have the results of our High Yield Portfolio been thus far?

So far, the results have been incredible-

Not only from a return perspective, but more importantly, from a fundamental perspective.

It’s great that every position in the portfolio has seen positive total returns so far.

But it is much more important that we build a portfolio that has the underlying fundamentals that allow us to achieve our High Yield goals:

1. Deliver a sustainable dividend yield of around 8%

2. Preserve capital (no long-term value erosion)

3. Provide predictable cash flow

So far, our portfolio has done exactly that and more.

As of right now, our portfolio is yielding 9.30%!

More importantly, this yield has been derived in a way that our dividend income does not fall if the overall NAV of our holdings falls in the short term-

Which is incredibly important to note, because this is not true for most high yield income ETFs on the market.

On top of this, our underlying holdings are growing earnings, and as a result, many of the holdings in our portfolio have already grown their dividend payouts, or are expecting to do so this year.

In fact, I recently spoke with the fund manager of the covered call ETF in our portfolio (you can read that interview in the Dividendology Database), and he stated he expects to be able to sustainably hike the dividend payouts of the fund this year, despite the fact the fund was yielding over 11% when we bought it!

And of course, the payout ratio of our underlying holdings is incredibly low for a High Yield Portfolio.

So yes, I’m certainly excited about the performance of the portfolio in the short term-

But in reality, this means very little.

I’m much more concerned with the evolution of the underlying fundamentals with the positions in our portfolio.

And right now, this is where our portfolio excels.

💡 Finding Opportunities

How have we been able to find such incredible opportunities?

It’s actually quite simple.

By sorting through thousands of opportunities.

And here is the beauty of high yield investing:

There is very little analyst coverage.

Yes, this makes it incredibly difficult to find opportunities, but this also means there are market inefficiencies leading to much greater opportunities for those willing to roll up their sleeves and learn the nuances of these asset classes.

It’s how we:

• Identified a position yielding over 10%, that also can cover its dividend payment 48 times over

• Identified a position yielding over 8%, growing distributions by double digits

• Identified a position yielding over 11%, growing distributions multiple times a year

It takes an incredible amount of work to find these opportunities-

But it is certainly paying off.

Let’s dive into the individual holdings in our portfolio, and look at a brief update from each of them.

Read more

This is the end result of 100’s of hours of research every month.

It’s time to dive in.

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1. 🌲 Alpine Income Property Trust (PINE)

The REIT market as a whole has struggled under the high interest rate environment over the last couple of years-

But that has led to some REITs becoming quite interesting opportunities.

I believe PINE is one of those REITs, but also a REIT that often gets overlooked because of its size.

It’s a $300M-ish market cap Florida-based net lease REIT, but the underlying story right now is potentially one of the most compelling in the small-cap REIT space.

The REIT owns 125 properties and currently maintains a high 99.5% occupancy rate.

And of course, like many REITs, they offer a quite attractive starting dividend yield at 6.29%, along with a history of growing the dividend at a healthy rate (especially for a REIT).

And on top of the yield being quite attractive, especially when compared to the dividend growth rate-

Their estimated AFFO payout ratio is just 57%!

That is the safest dividend coverage in 2026 out of all of their peers by a wide margin.

So while the dividend metrics look quite interesting, the growth trajectory has been ramping up as well.

A few weeks ago, Raymond James upgraded the stock on the back of accelerating growth, and their recent Q1 2026 earnings report confirmed exactly what they were seeing.

PINE reported Q1 2026 AFFO of $0.53 per diluted share (up roughly 20% year-over-year), beating both FFO and revenue expectations.

Alongside the print, management raised full-year guidance on the two metrics that matter most:

• AFFO per share to $2.11–$2.15, implying 12.7% growth at the midpoint

• 2026 investment volume from $70–$100M to $170–$200M, effectively doubling the planned deployment for the year

That last raise tells you how management feels about the deal pipeline.

Q1 transactions came in at a 14.1% blended initial yield, including a downtown Aspen retail property with a 50-year lease and 1.25% annual escalators, plus a $32M Georgia retail development loan at a 13% rate.

Their portfolio sits at 99.5% occupancy across 125 properties in 31 states, with a 9.3-year weighted average lease term, and 50% of annualized base rent comes from investment-grade rated tenants-

Which is one of the highest concentrations in the net lease space.

Top tenants include big names like:

1. Lowe’s (BBB+)

2. Dick’s Sporting Goods (BBB)

3. Walmart (AA),

4. Best Buy (BBB+)

5. Dollar General (BBB)

The top 5 making up less than 50% of total ABR (annual base rent).

There’s also meaningful exposure to defensive grocery and pharmacy tenants like Walgreens, which I view as a quiet upside factor heading into a potentially weaker consumer environment.

For more conservative income investors, there’s also PINE.PR.A, the 8% Series A cumulative redeemable preferred issued in November 2025. It currently yields about 7.9% at a slight premium to the $25 liquidation preference, with a first call date in November 2030.

The fair pushback on PINE is leverage and the lending book.

Net debt to pro forma EBITDA is 6.6x, which we typically don’t want to see higher than 5.5x, and the commercial loan portfolio (~$217M vs $438M of real estate) blurs the line toward an mREIT-style risk profile.

This essentially means roughly a third of PINE's invested capital sits in commercial loans rather than owned property.

Those loans yield 13–15%, including paid-in-kind (PIK) interest, which means a portion of the income is non-cash and only realized if the borrower performs through maturity.

That's a fundamentally different risk profile than a traditional net lease REIT.

PINE’s share price is only up 3.2% in the last 5 years, yet based on estimated AFFO per share for 2026, they’ve grown AFFO per share 35% since 2021.

So naturally from a valuation perspective, PINE is trading significantly below their historical valuation multiples.

Even from a dividend discount model, if they grow the dividend just 3.5%, that would imply over 25% upside!

Keep in mind, they are projected to grow AFFO per share at 6.2% over the next 4 years, combined with the fact that the AFFO payout ratio is currently 57%-

Dividend growth at 3.5% should be quite sustainable.

Overall, despite some added risk from leverage and its lending exposure, PINE’s combination of strong dividend coverage, accelerating AFFO growth, and discounted valuation makes it one of the more compelling small-cap REIT opportunities in today’s market.

2. 📱 Meta Platforms (META)

After releasing earnings this past week, Meta is now the cheapest of the MAG7 stocks.

The stock sold off about 8% post-print (down close to 10% intraday at one point) and is now down roughly 6.5% year-to-date, putting it on the lower end of its 52-week range.

Meanwhile, the average analyst price target sits at $826.66, implying around 35% upside

Let’s start with what was actually inside their earnings report:

• Revenue beat by ~$760M, up 33% year-over-year (the fastest growth since 2021)

• GAAP EPS of $10.44, a beat of $3.78

• Operating margin 41%, free cash flow $12.4B for the quarter

This isn’t a one-off.

Meta’s 5-year revenue CAGR is 18.5% and its 10-year revenue CAGR is 27.3%, with last year’s gross margin coming in at 82%.

Surging revenue growth, surging earnings growth, exceptional margins, and the stock sold off.

So what’s the issue?

Management raised 2026 capex guidance from $115–$135B to $125–$145B, citing higher component pricing and additional data center capacity.

On an absolute basis, that’s actually still lower than the rest of the MAG7.

Microsoft is around $190B, Google $180–$190B, and Amazon over $200B.

But absolute numbers don’t tell the story. You have to look at capex relative to revenue.

Before this raise, Meta was already projected to spend 49.8% of revenue on capex in 2026.

After the increase, that number is above 50%.

A historically capital-light advertising business with 82% gross margins is now spending more than half of every revenue dollar on capital expenditures.

That is capital-intensive-business math, and it’s the core of why the market is uncomfortable, especially when you consider Meta’s history with increasing capex spending.

Investors remember Reality Labs, the segment has bled capital essentially every quarter since inception, and the 2021–2022 capex binge took FCF/share from $13.90 down to $0.79 as ad budgets also pulled back during the recession.

Free cash flow more than recovered, but it pulled back again in 2025 on rising capex.

The market is being asked to trust Meta’s ROI on a much bigger spend than last cycle, and that’s a fair thing to be skeptical about.

The counter is that this isn’t maintenance capex, it’s growth capex aimed at the AI race.

Whether it works is what the entire thesis hinges on.

Meta’s revenue is a function of three inputs:

1. Family daily active people

2. Ad impressions

3. Average price per ad

Here’s how each moved year-over-year in Q1 2026:

More people, seeing way more ads, at meaningfully higher prices.

The DAP slowdown is the only real soft spot, and the reasons given are credible and not structural or lasting.

It’s also worth noting that Q1 is always Meta’s lowest revenue quarter, Q4 is the seasonal high (due to advertising budgets being heavier on the backend of the year).

Q1 2026 revenue was still higher than Q4 2024, so the underlying trajectory is healthy.

From a valuation perspective, forward looking returns are becoming quite attractive at current prices.

Even assuming a PE multiple that is below its historical average, with earnings growth that is below the average analyst estimate-

You’re still looking at 15%+ compounded returns through 2030.

The dividend is small now, but will have the ability to grow substantially after the period of elevated capex spending.

I will say, over 50% of revenue going to capex is not something you ignore and adds real risk to the stock-

But the underlying ad business is firing with 19% more ad impressions, 12% higher prices, 33% revenue growth, 41% operating margins, net cash on the balance sheet, and the multiple just compressed to levels well below their historical average.

3. 🍕 Domino’s Pizza (DPZ)

After being one of the top performing stocks for over a decade, the past 5 years for DPZ has been brutal.

That’s a remarkable reversal for what was one of the best-performing stocks of the entire 2009–2021 run.

A $10,000 investment in DPZ in 2005 would have grown to roughly $876,000 by 2021, with not a single red year over that stretch.

So the question is whether the recent breakdown is the start of a permanent valuation re-rate, or the kind of dislocation that creates an opportunity.

The headline numbers from the recent earnings report were a clear miss:

• GAAP EPS of $4.13 vs. ~$4.28 expected, a meaningful miss.

• Revenue of $1.15B, up just 3.6% YoY, also a $10M miss

Management was honest about why. CEO commentary called out two issues:

1. Pressure intensified through the quarter, particularly in March, on growing consumer uncertainty.

2. Competition in the QSR pizza space ramped up, with national pizza players matching (or essentially copying) Domino’s value offers.

That second point is the one that should get attention.

Domino’s competitive edge has been built on being the most aggressively-priced national player.

The “pizza war” eroding that moat is potentially a structural concern, which is concerning.

Here’s where I push back on the bear case slightly.

Domino’s is one of the cleanest examples of a great business model in public markets:

• Of ~7,200 US stores, only 262 are company-owned, about 98% are franchised

• Franchisees pay royalties and fees, so DPZ doesn’t fund most new stores.

• That’s why gross margins have actually expanded over the last decade and return on invested capital consistently runs above 50%, one of the highest figures you’ll find in the entire S&P 500.

ROIC above 50% is the kind of number that, on its own, tells you this is a genuinely high-quality business.

But because the business is so capital-light, the things that move the needle are items like same-store sales growth and net new store openings (especially international).

Q1 was soft on both:

• US same-store sales: +1.5% (company-owned), +0.8% (franchise).

• US net new stores: ~19 (essentially all franchise).

• International net new stores: 161, the real growth engine right now.

With that being said, the valuation makes DPZ interesting now.

Warren Buffett’s Berkshire Hathaway has now added shares of DPZ for six consecutive quarters.

This is what makes DPZ interesting.

Earnings have continued to grow even as the stock has fallen, so the P/E has compressed dramatically, now at its lowest level in well over a decade.

If we look at them through the lens of Bogle’s valuation (earnings growth + shareholder yield + multiple change):

At ~8.5% EPS growth, a starting 2.4% dividend yield, and ~2% buyback yield, with no further multiple compression, you get expected returns near 12.63% annually.

If DPZ sustains EPS growth at around 8.5%, I do think over time some level of multiple expansion becomes likely, further adding to total returns.

On top of this, DPZ has historically been an incredible dividend grower.

A starting yield of 2.13% with a 5 year dividend CAGR of 13.91% gives them a chowder score of over 16!

For patient long-term dividend growth investors, the valuation and dividend metrics make DPZ interesting at these prices.

I'd add it to the watch list now and follow same-store sales and FCF closely over the next few quarters.

Now, let’s review the full list for March.

Read more

With that being said, I am quite excited about the way our portfolio is shaping up.

In a market that many would argue is overvalued, we’ve been able to add positions to our portfolio that:

• Are fundamentally healthier than the S&P 500

• Are growing revenues and EPS at a faster rate than the S&P 500

• Trade at a more attractive valuation than the S&P 500

And of course, our positions are growing dividends at a double-digit rate on average.

Today, we will be adding a new position to the Dividend Growth Portfolio that I am quite excited about.

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🧩 The Portfolio

As a reminder-

The goal of the Dividend Growth Portfolio is simple:

To achieve dividend income growth of 7–10%+ annually, while maintaining capital appreciation in line with or better than the S&P 500 over a full market cycle.

Achieving the above goal would allow us to take full advantage of all of the benefits of dividend growth investing, which you can see here.

Members of Dividendology will be able to view all the holdings of the Dividend Growth Portfolio on Dividendology.com.

💰Our New Buy

The stock we’re adding to our portfolio today has many attractive characteristics, such as the fact they:

• Are projected to grow EPS at a double digit rate annually over the next 3 years

• Are trading below historic average valuation multiples

• Are growing dividends at a double digit rate

As always, the quality of the business is of utmost importance, but this is a stock in an incredibly unique position, and I believe is currently being misunderstood by the market.

This is the fourth purchase for our Dividend Growth Portfolio.

If you haven’t joined already, you can get access to everything pictured below here:

Now, let’s dive into our third Dividend Growth addition…

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The idea is simple:

In year one of retirement, withdraw 4% of your portfolio. Each year after, withdraw the same dollar amount, adjusted up for inflation. Do that, and history says your money should last at least 30 years.

The 4% rule has become the most popular retirement strategy over the last three decades.

But there is a MAJOR problem with the 4% rule…

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🚨 The 4% Rule is More Dangerous Than Ever

On a $1,000,000 portfolio, the 4% rule generates $40,000 in year one, then $41,200 in year two if inflation runs 3%, and so on.

The trinity study found this strategy worked more than 95% of the time on a 30-year retirement horizon.

That’s where the “95% success rate” you hear parroted everywhere comes from.

But here’s where things get interesting.

The 95% success rate is a historical average.

It blends together retirees who started in cheap markets with retirees who started in expensive ones.

And when you pull those two groups apart, the story changes dramatically.

Here’s the uncomfortable truth: every single historical failure of the 4% rule happened when stocks were expensive at the start of retirement.

📊 What The Research Actually Shows

What does the success rate for the 4% rule look like when also accounting for valuation?

When the CAPE ratio is above 20, the historical failure rate jumps all the way to above 25%!

As a reminder, the CAPE ratio (Cyclically Adjusted Price-to-Earnings) is one of the most widely used ways to measure how expensive the stock market is.

Instead of looking at just one year of earnings like a normal P/E ratio, CAPE looks at the average of the past 10 years of earnings, adjusted for inflation.

So where is the CAPE ratio today?

Sitting at 39.95.

The CAPE ratio is the second highest it has ever been, second only to the dot com bubble.

In other words, we are sitting in exactly the valuation range where the 4% rule has historically broken down.

We don’t even have enough historical data to know what the success rate of the 4% rule would be in this valuation range.

However, as I’ve pointed out before, this isn’t the only issue with the 4% rule.

🎲 Sequence Risk

Sequence risk refers to the danger of experiencing poor investment returns early in retirement, when an investor is making withdrawals.

Look at the example pictured below.

In the above example, both investors started with $100,000, and had an average annual return of 4% over a 15 year time period.

But here is what each finished with:

• Investor 1: $105,944

• Investor 2: $35,889

Why such a difference?

Because the sequence of returns you get plays a major role in the potential longevity of your portfolio.

The 4% rule killed many investors ability to retire in 2020, 2022, and essentially for the entire decade of the 2000s.

Consider someone who retired in 1966 with a $1M portfolio (60% bonds, 40% stocks) and pulled 4% per year, inflation-adjusted.

From 1966 to 2000, the portfolio actually averaged a 9.5% annual return.

Sounds great, right?

They ran out of money in retirement.

Why?

The late 1960s and 1970s delivered terrible real returns and brutal inflation right at the start of their retirement.

By the time the roaring ‘80s and ‘90s arrived, there wasn’t enough portfolio left to benefit from the rebound.

💰The Solution: Live off the Dividends

The 4% rule is much more dangerous than the average investor realizes, primarily due to the two reasons just mentioned:

1. Current Valuation

2. Sequence Risk

While obviously the valuation in the future can come down to more reasonable levels, sequence risk still remains a tremendous risk for investors.

Here’s the core insight that the 4% rule ignores entirely-

You don’t have to sell anything if your portfolio is paying you.

Sequence risk only exists because the 4% rule forces you to sell shares in down markets to fund your withdrawal.

Every share you liquidate at a low price is a share that can’t recover when the market rebounds.

If you retired at the peak of the dot-com bubble in early 2000 holding TXN, you watched the stock crash more than 80%-

And it took 17 years for the share price to reclaim its high!

Under the 4% rule, you’d have been forced to sell shares at deeply depressed prices every year just to fund your withdrawals, locking in permanent losses during the worst possible stretch.

But here’s what the price chart doesn’t show.

Over that same “lost” 17 years, Texas Instruments:

• Raised its dividend every single year, through the dot-com crash, 2008 financial crisis, and 2020 COVID crash

• Grew the annual dividend roughly 2,388% (Yes, I typed that right)

A retiree living off TXN’s dividends in 2000 was able to continue living off their dividends.

In fact, their paycheck kept growing the entire time.

They never had to sell a single share at the bottom.

And by the time the stock finally recovered, their income stream was many times larger than when they started.

That is the difference between a 4% rule strategy and a dividend strategy.

The dividend strategy forces you to focus on the underlying fundamentals of the company, to assess their ability to continue paying dividends.

If you can learn to do that, you will be set for life.

Dividendology

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Members will get access to the full list every month, as well as all other Dividendology features.

This month, only 36 stocks made the list.

Let’s dive in.

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🚨 Something Big is Coming…

I have a confession.

I’m obsessed with increasing the value that Dividendology provides.

That’s why I’ve been working on something big recently.

We recently added an 11%+ yielding ETF to our High Yield Portfolio that actually grows its dividend payments over time-

And our position is already up around 9%!

Why did I feel so confident in adding a fund with such a high yield?

Because I’ve spoken directly with the fund manager 4 times in the last 6 months to get in depth insights on what to expect from the fund.

And in my recent call, he even let me know I should expect another dividend increase from the fund this year!

Why do I bring this up?

Because speaking with the fund manager gave me an edge-

And I want to bring that edge to you.

That’s why I’m creating the ETF database.

I’ve been conducting interviews with fund managers in search of the best dividend growth and high yield opportunities, and will be releasing all of them into the ETF database, while also adding all future interviews there as well.

This will be an incredible resource for investors looking for deeper insights into income oriented funds.

And on top of this, anytime I’m conducting an interview with a fund manager, members of Dividendology will get to submit their own questions to me to ask the fund manager.

Along with this, we will be making multiple additions to the Dividend Growth Portfolio next week!

That’s why I’ve officially declared next week ‘Dividend Week’.

There’s more to share, but I’ll leave it at that for now.

Now let’s dive into our most upside dividend stocks.

1. 💻 Microsoft (MSFT)

Wall St. Price Target: $571 | Upside: 33.24%

The market saw a pull back to start 2026, with the majority of the drop coming from the tech sector.

But the S&P 500 is now sitting comfortably at new all time highs, up 3.9% year to date.

Many would see this and assume that they ‘missed the dip buying opportunity’-

But that couldn’t be further from the truth.

Only 2.4% of S&P 500 stocks are currently at a 52-week high, and perhaps even more interesting, the Nasdaq 100 Forward P/E is now ~22.4x, below its 10-year average (22.9x) and well under the 5-year average (24.7x).

Trailing valuation multiples are higher, but so are earnings growth estimates.

In other words, there are likely opportunities in the tech sector.

According to Wall Street analysts, one of those opportunities is Microsoft.

Microsoft generates revenue in three ways:

1. Software subscriptions (Microsoft 365)

2. Cloud computing infrastructure (Azure)

3. Enterprise software licenses spanning Dynamics, LinkedIn, GitHub, and Windows

The result is a recurring-revenue engine, with over 450 million commercial seats on Microsoft 365, multi-year enterprise contracts, and consumption-based Azure billing that scales with customer usage.

In Q2 FY2026 (ended December 2025), Microsoft reported $81.3 billion in revenue, up 17% year-over-year.

The AI monetization opportunity is real and accelerating.

Microsoft 365 Copilot now has 15 million paid seats, up over 160% year-over-year, though that still represents only about 3% of the 450 million seat installed base, meaning the monetization runway is enormous.

GitHub Copilot hit 4.7 million paid subscribers, up 75%.

Operating margin expanded to 47%, and the company returned $12.7 billion to shareholders through dividends and buybacks in the quarter alone.

From a valuation standpoint, something incredibly interesting has happened.

We’ve seen a wide divergence in the price to earnings valuation multiple and the price to cash flow multiple valuation.

Why would this happen?

That elevated valuation is largely a function of temporarily depressed free cash flow, driven by unusually high capital expenditures tied to AI infrastructure build-out.

In other words, Microsoft does not look expensive from a cash flow perspective because the business is weakening, it looks expensive because the company is investing far more aggressively than normal.

Not all capex is created equal.

In general, there are two types of capital expenditures:

1. Maintenance capex is spending required simply to keep the business running at its current level. It preserves existing revenue but does not meaningfully increase future earnings power.

2. Growth capex, on the other hand, is discretionary investment aimed at expanding capacity, unlocking new revenue streams, and increasing long-term cash flow.

The vast majority of Microsoft’s elevated capex today falls firmly into the growth capex category.

Microsoft is building out global data center capacity, AI infrastructure, and long-lived cloud assets to meet demand that already exists.

How do we know that demand exists?

Microsoft now has one of the strongest forward revenue backlogs in all of big tech.

Commercial remaining performance obligations (RPOs, which represent signed customer contracts that have not yet been recognized as revenue) have surged to $392B (+51% YoY), nearly doubling in just two years, with a weighted average duration of ~2 years.

A large portion of their RPOs are directly tied to OpenAi which doesn’t create a customer concentration risk, but sentiment around MSFT finally seems to be shifting in a bullish direction again.

22 of 24 analysts rate MSFT a Strong Buy with an average price target of $571, implying over 35% upside from current levels.

2. 💊 Eli Lilly (LLY)

Wall St. Price Target: $1,248 | Upside: 35.01%

Eli Lilly is a global pharmaceutical company that discovers, develops, and commercializes branded prescription drugs.

Founded in 1876, the company has operated for nearly 150 years, but its current growth trajectory is unlike anything in its history.

Lilly’s GLP-1 franchise, Mounjaro for type 2 diabetes and Zepbound for obesity, generated a combined $36.5 billion in FY2025 revenue, representing 56% of total company sales.

These drugs work by mimicking a gut hormone that suppresses appetite and regulates blood sugar, producing dramatic weight loss of 15-25% of body weight in clinical trials.

As you probably know, the addressable market is massive:

Roughly 1 billion people globally are classified as obese, and U.S. penetration among eligible adults remains in the mid-single digits.

In Q4 2025 (reported February 2026), Lilly posted $19.3 billion in revenue, up 43% year-over-year, beating estimates by $1.35 billion.

Full-year FY2025 revenue hit $65.2 billion (+45%), with EPS nearly doubling, with gross margins sitting very high at 83%.

And recently, the pipeline has continued to strengthen.

On April 1, 2026, the FDA approved Foundayo (orforglipron), an oral GLP-1 pill that can be taken any time of day without food or water restrictions.

That’s a meaningful convenience advantage over Novo Nordisk’s oral Wegovy, which requires 30 minutes of fasting.

The outlook between LLY and NVO has dramatically shifted towards LLY, which is evident when looking at EPS growth projections:

• NVO Projected 3 YR EPS CAGR: -0.78%

• LLY Projected 3 YR EPS CAGR: 27.69%

Behind that, Retatrutide, a triple agonist targeting GLP-1, GIP, and glucagon receptors, demonstrated 29% body weight loss in Phase III trials and has the potential to become the next blockbuster.

Lilly now holds over 60% of the U.S. incretin market and roughly 70% of branded obesity prescriptions.

The dividend yields only 0.67% at current prices, but that’s because the stock has appreciated so dramatically, not because the dividend is small.

Lilly pays $6.92 per share annually, has increased the dividend for 11 consecutive years, and the 5-year dividend CAGR almost 13%.

With 14 of 16 analysts rating LLY a Strong Buy and an average target of $1,204, Wall Street sees roughly 30% upside.

3. 🧮 Intuit (INTU)

Wall St. Price Target: $580 | Upside: 47.81%

This is an interesting pick from Wall Street, but fears surrounding the way Intuit will be impacted by AI has continued to ramp up in recent months.

Intuit operates four major financial software platforms:

1. TurboTax

   TurboTax is the dominant consumer tax preparation platform in the U.S.

2. QuickBooks

   QuickBooks serves as the leading accounting solution for small businesses, processing approximately $174 billion in payment volumes annually.

3. Credit Karma

   Credit Karma is a free financial health platform with over 100 million members that generates revenue through referral commissions.

4. Mailchimp

   Mailchimp provides email marketing and CRM tools for small businesses.

If you’ve filed your own taxes or managed payroll for a small business, you’ve likely used one of their products.

The business model is predominantly subscription-based, which has historically led to incredible predictable and stable revenue and earnings growth, with exceptional profit margins.

In Q2 FY2026 (ended January 2026), Intuit reported $4.65 billion in revenue, up 17% year-over-year.

Non-GAAP EPS came in at $4.15, beating consensus by $0.49. Credit Karma grew 23%, and the online QuickBooks ecosystem grew 21%.

For the full year, the company guided $21.0-21.2 billion in revenue (+12-13%) and non-GAAP EPS of $22.98-$23.18.

So with strong historic fundamentals and solid guidance-

Why is the stock down 34% over the past year?

Two words: multiple compression.

The stock traded above 50x earnings at its peak and has been cut roughly in half to around 17x non-GAAP forward earnings.

A broad selloff in SaaS stocks accelerated in early 2026 after Anthropic’s Claude model announcements raised concerns that AI agents could replace seat-based software entirely.

Intuit was hit especially hard because the market fears that LLMs could eventually handle tax prep and bookkeeping without dedicated software-

And I must say, I’ve seen some incredible use cases personally when it comes to AI doing tax prep.

However, the counterargument is certainly worth considering.

Intuit has been investing in AI since 2020, which was well before the current hype cycle.

The company has partnerships with both OpenAI and Anthropic, its Intuit Assist platform automates 93% of tax forms, and TurboTax Live (which pairs AI with human CPAs) grew 47% last year.

As CEO Sasan Goodarzi has stated-

“Customers don’t want to do anything that has to do with their money, they want us to do it for them.”

At a forward non-GAAP P/E of roughly 17x, Intuit is trading at its cheapest valuation in over a decade.

The question is obviously whether the market’s AI disruption fears are justified.

Right now, Wall Street doesn’t seem to think so.

29 of 35 analysts rate it a ‘Buy’ with a median price target of $579, implying nearly 47% upside.

Now, let’s dive into the full list of dividend stocks with the most upside according to Wall Street.

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Not fully grasping the importance Return on Invested Capital (ROIC).

It took me years to fully appreciate this.

I understood it in theory for a long time-

But it wasn’t until I saw real-world examples that my investing philosophy changed forever.

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💎 What is ROIC?

At its core, ROIC measures how efficiently a company generates profit from the capital invested in its business.

The formula is simple:

I love this analogy from Thomas Chua:

Imagine a company is a car.

• NOPAT is the distance you can travel (how much profit was made)

• Invested Capital is the amount of fuel in the tank (the resources used to generate that profit).

So ROIC = “miles per gallon” for a business.

Ideally, we want a car that can travel the furthest distance using the least amount of fuel.

That’s exactly what a high ROIC tells you.

If a company has an ROIC of 25%, that means for every $100 of capital invested in the business, the company generates $25 in after-tax operating profit.

That’s a 25% return on every dollar deployed.

Why does this matter so much?

Because over the long run, a stock’s performance will closely mirror the underlying returns on capital of the business.

Charlie Munger said it best:

Read that again.

Valuation matters, but business quality matters nearly just as much over the long term.

“We’ve really made the money out of high-quality businesses. Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns.” -Charlie Munger

📊 The Shocking Data

Goldman Sachs analyzed decades of market data and released a report where they compared two groups of companies:

1. The top 25% of businesses based on ROIC

2. The bottom 25% of businesses based on ROIC

The results were staggering.

Companies in the top 25% of ROIC substantially outperformed the bottom 25% over the long term, and the gap only widened as the holding period increased.

🧮 The Compounding Formula

Here’s where it gets powerful.

If a company generates a 25% ROIC and reinvests 60% of its earnings back into the business:

25% x 60% = 15% earnings growth

Now compare that to a company with a 10% ROIC reinvesting the same 60%:

10% x 60% = 6% earnings growth

The companies had the same reinvestment rate, but saw vastly different outcomes.

Over a decade, the 15% grower will be worth roughly 4x more than the 6% grower.

This is why ROIC is the foundation of everything else we care about, like earnings growth, dividend growth, and ultimately, share price appreciation.

But here’s where it gets even more practical.

You can flip that formula around to figure out how much a company needs to reinvest to hit a specific growth rate:

Let’s say a company wants to grow earnings at 10% per year.

• At a 20% ROIC, they only need to reinvest 50% of earnings (10% / 20%)

• At a 10% ROIC, they need to reinvest 100% of earnings (10% / 10%)

This is incredibly important for dividend growth investors.

The higher the ROIC, the less the company needs to reinvest to maximize grow, and the more free cash flow is left over for dividends and share buybacks.

This is exactly why companies like Visa and Mastercard can grow earnings at double digit rates while still returning massive amounts of capital to shareholders.

Their ROIC is so high, they don’t need to reinvest much to keep the growth engine running.

🏰 Why Some Companies Sustain High ROIC

Now, basic economic theory tells us that high returns on capital should eventually attract competition that erodes those returns back to the mean/average.

It’s a concept known as ‘mean reversion’.

But the reality is that the best companies defy this theory for decades for one reason:

Economic moats.

A sustainable competitive advantage protects a company’s ability to generate high returns on invested capital, and protects their profitability margins.

These moats show up in a few key forms:

1. Network Effects — The value of the product increases with each new user. Think Visa or Mastercards payment network. The more merchants accept it, the more consumers want it, and vice versa. This creates a self-reinforcing cycle that is nearly impossible to break.

2. Switching Costs — Once a customer is embedded into your product, leaving is expensive and disruptive. Companies like Microsoft have extremely high switching costs. Businesses don’t rip out their entire workflow for a marginally cheaper alternative.

3. Strong Brands — Companies like Apple and Hermes command premium pricing simply because of the power of their brand. This translates directly into higher margins and higher ROIC.

Keep in mind, MOATs can change over time, and the best companies are actively widening their moats over time.

Many investors focus on the size of the moat, but not enough focus on the trajectory of the moat.

“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” - Warren Buffett

🥇 High ROIC Dividend Growth Stocks

There is a high level of overlap between high ROIC stocks and dividend growth stocks.

I’ve been pointing this out for years.

Here are just a few examples of the highest ROIC dividend growth stocks I’m watching:

A few things to notice here:

Visa has a negative reinvestment rate. This means it’s actually shrinking its invested capital base, largely through aggressive share buybacks, while still growing adjusted earnings by +14%. That’s the power of being a Capital-Light Compounder. It doesn’t need to invest more capital to grow.

On the other hand, look at Microsoft. A reinvestment rate of 86%. This is a Reinvestment Moat company actively deploying capital into growth opportunities at high returns. Microsoft’s massive CapEx into AI infrastructure is a prime example.

And then there’s Altria, A 24.6% ROIC, which is actually higher than Microsoft and Costco, but only +4.4% earnings growth with a negative reinvestment rate. That’s the textbook Legacy Moat. High returns on existing capital, but no reinvestment opportunities left. Almost all earnings get shipped back to shareholders as dividends. Great for income, but the compounding days are behind it.

📝 ROIC vs. WACC: The Real Test

Here’s the part many investors miss.

A high ROIC alone isn’t enough.

ROIC must be compared against the company’s Weighted Average Cost of Capital (WACC).

• ROIC > WACC = The company is creating value. Every dollar invested earns more than it costs.

• ROIC < WACC = The company is destroying value. It would be better off returning capital to shareholders.

  

The wider the spread between ROIC and WACC, the more value is being created.

A company earning 30% ROIC against a 10% WACC is a compounding machine.

A company earning 12% ROIC against a 10% WACC is barely creating value.

This is the exact framework that separates great businesses from mediocre ones, regardless of how cheap or expensive the stock appears on a traditional valuation basis.

💵 The One Dollar Test

Still not convinced?

Take a look at this chart.

This chart is called “The One Dollar Test” and it’s one of the most powerful visualizations of why ROIC matters in my opinion.

Here’s how to read it:

The horizontal axis (x-axis) shows the spread between a company’s ROIC and its WACC.

• Companies on the right side are earning well above their cost of capital.

• Companies on the left are earning below it.

The vertical axis (y-axis) shows how much the market values each dollar of capital invested in the business.

In plain English:

If a company has an ROIC-WACC spread of 0 (meaning they earn exactly their cost of capital), the market values each dollar invested at roughly $1.

This of course makes sense, as the company is just breaking even.

But if a company earns 20% above its cost of capital?

The market might value each dollar invested in the business at $4, $5, or even $8+.

And companies earning well below their cost of capital?

The market values their invested capital at less than $1, meaning those businesses are literally worth less than the money put into them.

The takeaway is simple:

The market rewards companies that earn high returns on their invested capital.

The wider the gap between what a company earns (ROIC) and what it costs to fund that capital (WACC), the more the market is willing to pay for every dollar in the business.

This is the data behind the idea that ROIC drives valuation, not the other way around.

💰 Capital Allocation & ROIC

So we’ve established that ROIC is the most important metric. But here’s the thing-

A high ROIC means nothing if management doesn’t allocate capital properly.

At the end of the day, there are only 5 things a company can do with its free cash flow:

1. Reinvest into the business

2. Mergers & Acquisitions

3. Pay down debt

4. Share buybacks

5. Dividends

That’s it. Every dollar of free cash flow goes into one of these five buckets.

The goal of management is to decide the best way to allocate that capital to maximize shareholder returns.

And ROIC is the compass that should guide every single one of those decisions.

If the company can identify projects that will generate a high ROIC, reinvest.

If the company can acquire businesses that will generate returns above WACC, acquire.

If neither of those options exist, return the cash to shareholders through buybacks and dividends.

It’s that simple in theory.

But in practice, this is where most companies go wrong.

If a company uses all of its capital to pay out dividends, they can’t reinvest back into the business, making it more difficult to grow free cash flow in subsequent years — which actually makes it more difficult to grow dividends in the future.

This is why we commonly see dividend growth stocks with payout ratios around 20% grow dividends at a high rate, and even outperform the market.

But wait a second!-

Doesn’t this mean if a stock stopped paying a dividend and reinvested all of its capital, then free cash flow would grow faster, leading to higher total returns?

Not necessarily.

Meta is the perfect case study.

Ⓜ️ The Meta Case Study

When Meta announced plans to start paying dividends in early 2024, many investors were surprised.

Here was a company with exceptional profitability, a five-year revenue CAGR of 18.4%, over $91 billion in current assets, and minimal debt.

So why start paying a dividend?

Because the company was generating so much free cash flow, it became impossible to reinvest all of it at high rates of return.

Over the prior four to five years, Meta burned through $45 billion trying to build Reality Labs, their metaverse division, which turned out to be unprofitable.

That’s $45 billion of capital deployed at returns well below their cost of capital (Remember, we need ROIC > WACC).

This is the critical point:

Even the best companies can destroy shareholder value if they reinvest too much capital into low-return projects.

If Meta would have paid out that $45 billion in dividends instead of reinvesting it into low ROI projects, it would have actually increased the company’s total return!

Proper capital allocation always maximizes shareholder returns.

📈 Our Dividend Growth Portfolio

We’ve now added 3 positions to our dividend growth portfolio, which members of Dividendology can view at anytime.

Next week, we will be making multiple additions to the portfolio.

As you might suspect, our Dividend Growth Portfolio has an average ROIC that is significantly higher than the S&P 500.

We are still in the very early stages of building this portfolio, but relative to the S&P 500, our portfolio has:

• Better historical growth

• Better projected growth

• Better valuation on a price to earnings growth basis

• Better capital allocation

• Better balance sheet health

• Higher dividend growth

This is why I’m so excited about the formation of this portfolio over the long term.

Let’s now review each of these key metrics for every holding in the portfolio:

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This is the end result of 100’s of hours of research every month.

It’s time to dive in.

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1. 💳 Mastercard (MA)

Mastercard operates with four primary business segments:

1. Transactions Processing (the largest segment)

2. Domestic Assessments

3. Cross Border Volume Fees

4. Value-Added Services & Solutions

At its core, Mastercard operates a global payments network connecting consumers, merchants, banks, and governments across more than 210 countries.

Every time a transaction is processed, Mastercard earns a small fee.

Importantly, it does not issue credit cards, lend money, or take on credit risk. Instead, it acts as the “toll road” of global commerce, collecting fees as money moves across its network.

This results in an incredibly capital-light and high-margin business model.

In 2025, Mastercard generated a gross profit margin of over 83% and a return on invested capital above 48%, highlighting just how efficient and scalable the business is

Mastercard’s capital light model has historically made it a very attractive compounder.

Keep in mind, we just saw the largest monthly inflation increase since 2022.

When oil spikes, it raises transportation, manufacturing, and food costs, which eventually flow through the entire economy.

Crude oil has surged ~46% in the past month alone.

According to Federal Reserve research-

A 10% increase in oil prices can lift headline CPI by roughly 0.4% over time when accounting for broader economic effects

Scale that to a move of this magnitude, and you’re looking at meaningful upward pressure on inflation.

How does this impact Mastercard?

Because its fees are based on a percentage of transaction value, higher prices across the economy directly translate into higher revenue, without requiring additional capital or customers.

Mastercard is the ultimate inflation hedge.

But what makes Mastercard most interesting right now is the valuation.

Mastercard is currently trading at their lowest forward P/E multiple in over 5 years.